NEW YORK & SAN SALVADOR, El Salvador--(BUSINESS WIRE)--Fitch Ratings has affirmed Banco Internacional de Costa Rica's (BICSA) Issuer Default Rating (IDR) at 'BB+'. The Bank's Viability Rating (VR) and National Ratings in Panama were also affirmed. See the full list of rating actions at the end of this rating action commentary.
KEY RATING DRIVERS - IDRS, NATIONAL RATINGS AND SENIOR DEBT
The bank's IDRs, National and senior debt ratings reflect the support it would receive from its main shareholder, Banco de Costa Rica (BCR, rated 'BB+' with a Stable Outlook by Fitch), should it be required. The ratings of the bonds issued correspond to BISCA's International rating of 'BB+'. No rating action is taken on bank's debt issued in El Salvador.
BICSA is considered by Fitch to be a core operation for BCR. Originally created as a vehicle to extend the operations of the state-owned banks outside Costa Rica, BICSA has successfully grown its regional portfolio, maintaining sound asset quality and adequate profitability. Its contribution to the consolidated business complements its parent's strong market position in Costa Rica. Fitch believes that extraordinary support from the parent would be forthcoming to manage reputational risk.
The bank's IDR and long-term National rating have a Stable Outlook, in line with those of its main shareholder, BCR.
RATING SENSITIVITIES - IDRS, NATIONAL RATINGS AND SENIOR DEBT
The bank's IDRs, National and senior debt ratings are sensitive to a change in Fitch's assumptions as to BCR's capacity or willingness to support BICSA.
KEY RATING DRIVERS - VR
BICSA's VR reflects its stable and sound asset quality, which benefits from geographic and economic sector diversification. The bank has a consistent track record of low delinquencies and high reserve coverage. However, concentrations by economic group are high (the 20 largest borrowers represented 30% of the total loan portfolio in 2012 and 2013) due to the bank's strong corporate focus. BICSA's profitability is moderate and below the system's average. The bank compensates for the relatively low net interest margins, through high operational efficiency and low costs of funding.
BICSA's funding is stable, but highly concentrated (the 20 largest depositors represent 55% of total deposits). BICSA has adequate asset-liability management and a good liquidity position, which exceeds the system's average. The short-term nature of its lending operations, the recurrent generation of cash and the high renewal of deposits, to a certain degree, for the risks associated with its high depositor concentration.
The bank's capitalization is adequate (Fitch Core Capital was 11.9% of risk-weighted assets as of December 2013), but below the system's average. The pressures on the bank's capital ratios are mitigated by the moderate growth of the entity's asset base and its traditional no-dividend policy. While not contemplated in Fitch's base-case scenario, an equity injection from its shareholders would be available, if needed.
BICSA has registered high management turnover over the past two years. While this has had a temporary negative impact on the entity's corporate governance, its senior management has a good banking background.
RATING SENSITIVITIES - VR
The bank's VRs are sensitive to a change in Fitch's assumptions regarding profitability, asset quality deterioration, or a decline in the bank's capital position. On the other hand, a significant improvement in the diversification of its loans and funding sources could also improve the bank's VR in the long run.
Fitch affirmed BICSA's ratings as follows:
--Long-term IDR at 'BB+'; Outlook Stable;
--Short-term IDR at 'B';
--Viability Rating at 'bb';
--Support Rating at '3'.
--Long-term National rating at 'AA-(pan)'; Outlook Stable;
--Short-term National rating at 'F1+(pan)';
--Long-term senior unsecured bonds at 'AA-(pan)';
--Commercial Paper at 'F1+(pan)'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);
--'National Ratings Criteria' (Oct. 30, 2013);
--'Banco de Costa Rica' (Dec. 20, 2013);
--'Banco Nacional de Costa Rica' (Jul. 18, 2013);
--'Panama' (Mar. 7, 2014).
Applicable Criteria and Related Research:
Panama After the Elections: Policy Continuity Likely
National Scale Ratings Criteria
Global Financial Institutions Rating Criteria