SANTIAGO, Chile & NEW YORK--(BUSINESS WIRE)--Fitch Ratings welcomes the announced USD450 million capital injection for Banco del Estado de Chile (Banco Estado) as it will restore its capital adequacy ratios and ease the pressure on the bank's Viability Rating (VR) of 'bbb' in the short term, although in Fitch's opinion its mid-term effect is too early to judge and will depend on the growth plans of the bank while Fitch considers that profitability trends will remain similar to its historic average. A complete list of the bank's ratings is provided at the end of this release.
On March 28, 2014, Fitch affirmed Banco Estado's ratings (see 'Fitch Affirms Banco del Estado de Chile's IDR at 'A+'; Outlook Stable' published March 28, 2014 on www.fitchratings.com) assuming that Banco Estado's equity ratios would slightly improve during 2014, although still comparing unfavourably with local and international peers. In that release, Fitch stated that while changes in the bank's IDRs, support, support rating floor and national ratings are contingent to sovereign rating actions for Chile, Bancos Estado's VR could be downgraded if the bank maintains its current capital levels and fails to improve its Fitch Core Capital (FCC) ratio to a minimum of 7% by end-2014, or due to a material deterioration in asset quality (NPLs rising to 6%) that reduce its loss absorption capacity, although the latter is not Fitch's base case scenario.
In Fitch's opinion, the capital injection recently announced by Chile's President Mrs. Michelle Bachelet eases this pressure in the short term as the bank's FCC will improve to close to 7.6%. However, as the objective of the capital increase is to expand lending to SMEs and residential mortgages, Fitch will monitor the evolution of the bank's capitalization in the medium term and considers that future earnings retention would be key for the bank to maintain its capitalization at adequate levels.
Banco Estado's VR is supported by its strong liquidity given its high proportion of liquid assets and sound structural funding based on a wide solid customer base. The bank's market position places it as one of the strongest competitors in the Chilean banking system, being the third largest bank measured by loans, and the first by deposits at the end of 2013. The bank's VR is limited by its low capital base, and lower, albeit improving, credit quality in mortgage loans portfolio compared to local and international private peers (emerging market commercial banks with VR in the 'bbb' category). During 2013, Banco Estado showed good overall financial performance in spite of high level of competition.
Banco Estado's IDRs are driven by the extremely high probability of support from its owner, the State of Chile. The bank is not a company by shares and relates with the Chilean Government through the Ministry of Finance. Banco Estado represents an important instrument of the State of Chile for developing credit policies, plays a strategic social role for the government and has a systemic importance. Based on these drivers, the bank's IDRs are aligned with Chile's Sovereign foreign currency IDR ('A+'; Outlook Stable) and local currency IDR ('AA-'; Outlook Stable), and they also underpin its high support rating of '1' and support rating floor of 'A+'.
Banco Estado's national ratings reflect the lowest expectation of default risk relative to all other local issuers or obligations, explained by the extremely high probability of government support.
Fitch currently rates Banco Estado as follows:
--Foreign currency long-term IDR at 'A+'; Outlook Stable;
--Local currency long-term IDR at 'AA-'; Outlook Stable;
--Foreign and local currency short-term IDRs at 'F1';
--VR at 'bbb';
--Support rating at '1';
--Support rating floor at 'A+';
--Long-term foreign currency senior unsecured bonds at 'A+';
--Long-term national rating at 'AAA(cl)';
--Short-term national rating at 'N1+(cl)';
--National long-term rating senior unsecured bonds at 'AAA(cl)';
--National long-term rating on its subordinated bonds at 'AA(cl)'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria