Fitch Affirms Guatemala's Three Largest Banks' Ratings Following Peer Review

NEW YORK--()--Upon completion of a peer review, Fitch Rating has affirmed the ratings for Guatemala's three largest banks: Banco Industrial, S.A. (Industrial), Banco G&T Continental S.A. (G&TC) and Banco de Desarrollo Rural, S.A. (Banrural). A full list of rating actions follows at the end of this press release.

RATING ACTIONS AND RATIONALE

Fitch has affirmed all the ratings of the largest Guatemalan banks as their intrinsic creditworthiness and performance relative to international peers remain unchanged. Fitch has also affirmed the rating of Industrial's subordinated Tier I capital notes debt and the ratings of the issuances of Industrial Subordinated Trust (ISbT) and Industrial Senior Trust (ISnT), which are Industrial's special vehicles for these issuances. In addition, Fitch affirmed the national ratings for the subsidiaries of these banks, with the exception of Industrial's subsidiary Contecnica, S.A. (Contecnica) and G&TC's subsidiary G&T Conticredit, S.A. (Conticredit), whose national ratings were upgraded. Both Contecnica's and Conticredit's have consistently developed a key role for their shareholders' business model and, in Fitch's view, they are core subsidiaries for their parents.

Guatemala's largest banks have assets between USD5 billion and USD10 billion. Industrial and G&TC have expanded operations to other Central American countries, while Banrural has concentrated in Guatemala. These three banks together managed 67% of total system's assets as of December 2013.

G&TC and Industrial share a strategic orientation toward serving the corporate sector and have similar risk appetites. They also register comparably sound asset quality. However, they exhibit differences in profitability (higher in the case of Industrial). In Fitch's opinion, G&TC and Industrial have a similar credit risk profile, which is reflected in their shared national and international ratings.

By contrast, Banrural has a very strong franchise in the retail sector resulting in long track record of relatively higher profitability. The bank's high profitability, healthy asset quality and moderate dividend distribution, have allowed it to lead the peer reviewed banks in capitalization. Banrural's ratings are above Industrial's and G&TC's as a result of its stronger capital position and its sustained internal capital generation.

All of the banks have significant exposure to Guatemala's sovereign. With respect to Industrial and G&TC, their high exposures to Guatemalan government bonds (currently rated 'BB+' with a Negative Outlook by Fitch) constrain their IDRs' and VRs' upside potential up to the sovereign's rating. Banrural has less direct exposure to the government but receives a significant share of its funding from public sector institutions. As a result, its ratings are also constrained up to the sovereign's ratings. The Negative Rating Outlook on Banrural's IDRs implies that a downgrade of Guatemala's sovereign ratings will result in a downgrade of Banrural's IDRs. Banrural's VR could also be downgraded given the bank's exposure to the public sector.

BANRURAL'S KEY RATING DRIVERS - IDRs, VR, SUPPORT, SUPPORT RATING FLOOR, AND NATIONAL RATINGS

Banrural's IDRs and VR reflect its strong capitalization and sustainably high profitability, which compare positively with its main local and international peers. Banrural's ratings also reflect the bank's good credit quality and stable and diversified deposit base. The ratings also take into account Banrural's moderate concentrations in public sector funding as well as its limited revenue diversification and lower efficiency levels, resulting from its micro-finance orientation. Banrural's national ratings were affirmed with a Stable Outlook reflecting its strong financial profile relative to its local market.

Banrural's support rating of '3' reflects Fitch's opinion that the bank maintains a moderate probability of support from the state, given its systemic importance in the banking system. The current support rating floor ('BB-'), two notches below the sovereign rating, is explained by the moderate financial flexibility of the government to provide support to systemically important banks in the country and the significant presence of foreign currency funding.

G&TC'S, GTC BANK'S AND G&T CONTICREDIT's KEY RATING DRIVERS - IDRs, VR, SUPPORT, SUPPORT RATING FLOOR, AND NATIONAL RATINGS

G&TC's IDRs and VR are driven by its sound market position and franchise, good asset quality and efficiency, ample deposit base, and adequate liquidity position. G&TC's ratings are tempered by its moderate capitalization and profitability, and its relatively high exposure to its largest debtors, related-party borrowers, and the local sovereign ('BB+'/Outlook Negative).

The support rating of '3' reflects Fitch's opinion that the bank maintains a moderate probability of support from the state, given its systemic importance in the banking system. The current support rating floor ('BB-'), two notches below the sovereign rating, is explained by the moderate financial flexibility of the government to provide support to systemically important banks in the country and the significant presence of foreign currency funding.

G&TC's national ratings were affirmed and its Outlook remains Stable as the bank's relative strength in the local market remains unchanged. In turn, both G&T Conticredit, S.A. and GTC Bank, Inc. are considered core subsidiaries for G&TC. These subsidiaries are highly integrated to its parent and complement G&TC's business model by providing services to a large part of the bank's credit card customers and off-shore banking products to corporate and high-net worth customers, respectively. As a result their national scale ratings are equalized with those of its controlling bank.

INDUSTRIAL'S AND CONTECNICA'S KEY RATING DRIVERS - IDRs, VR, SUPPORT, SUPPORT RATING FLOOR, AND NATIONAL RATINGS

Industrial's IDRs are driven by its strong franchise, sound asset quality, good profitability, ample deposit base, and sound liquidity, which, in turn, are reflected in the bank's VR. Industrial's ratings are limited by the moderate capitalization and the relatively high exposure of its investment portfolio to the local sovereign ('BB+'/Negative Outlook). Industrial is the largest Guatemalan bank in terms of assets and deposits with a corporate orientation; it is also an important player in Central America.

The support rating of '3' reflects Fitch's opinion that the bank maintains a moderate probability of support from the state, given its systemic importance in the banking system. The current support rating floor ('BB-'), two notches below the sovereign rating, is explained by the moderate financial flexibility of the government to provide support to systemically important banks in the country and the significant presence of foreign currency funding.

Industrial's national ratings were affirmed and its Outlook remains Stable as the bank's relative strength in the local market remains unchanged. Contecnica, S.A. is considered a core subsidiary for Industrial. This subsidiary is highly integrated to its parent and complements Industrial's business model by providing services to a large part of the bank's credit card customers. As such, its national scale ratings are equalized to those of its parent.

INDUSTRIAL'S SUBORDINATED TIER 1 CAPITAL NOTES, SUBORDINATED AND SENIOR TRUSTS KEY RATING DRIVERS

Industrial's subordinated Tier I capital notes debt is four notches below the bank's long-term IDR given its deep subordination status and discretionary coupon omission.

ISbT is one notch below Industrial's long-term IDR reflecting the subordinated status, ranking junior to all Industrial's present and future senior indebtedness, pari passu with all other unsecured subordinated debt and senior to Industrial's capital and tier I hybrid securities.

ISnT's rating is in line with Industrial's long-term IDR reflecting that the senior unsecured obligations rank equally to Industrial's unsecured and unsubordinated obligations.

BANRURAL'S RATING SENSITIVITIES - IDRs, VR AND NATIONAL RATINGS

As reflected by the Negative Outlook, a downgrade of Guatemala's sovereign ratings will result in a downgrade of Banrural's IDRs and VR. On the other hand, if the sovereign ratings are eventually affirmed at 'BB+' and the Outlook revised to Stable from Negative, it is highly likely that Banrural's Rating Outlook would be revised accordingly. Banrural's national ratings would not be affected should Guatemala's sovereign be downgraded. A sustained reduction of its Fitch Core Capital below 10% and/or profitability lower than 1% may trigger a negative review on its VR and its National Scale Ratings.

INDUSTRIAL AND G&TC'S RATING SENSITIVITIES - IDRs, VR AND NATIONAL RATINGS

Industrial's and G&TC's VR and IDR upside potential is considered limited given the banks' high exposure to the sovereign in their investment portfolio; as a result, their ratings are also constrained up to the sovereign's ratings.

A sustained reduction of Industrial's Fitch Core Capital below 10% and/or its Return on Average Assets (ROAA) consistently below 1% may trigger a negative review on the bank's VR and its national scale ratings.

G&TC's VR and national scale ratings could be pressured downward should the bank fail to reverse the negative trend of its profitability metrics and reaches a Fitch Core Capital below 10%.

The national ratings of Industrial and G&TC's subsidiaries will mirror changes on the national scale ratings of the parent.

INDUSTRIAL'S SUBORDINATED TIER 1 CAPITAL NOTES, SUBORDINATED AND SENIOR TRUSTS RATING SENSITIVITIES

Industrial's subordinated Tier I capital notes debt, ISnT and ISbT's ratings downgrade potential will be derived from changes in the same direction in Industrial's IDR.

Fitch has affirmed the following ratings:

Banrural:

--Long-term foreign currency IDR at 'BB+'; Outlook Negative;

--Short-term foreign currency IDR at 'B';

--Long-term local currency IDR at 'BB+'; Outlook Negative;

--Short-term local currency IDR at 'B';

--Viability rating at 'bb+';

--Support at '3';

--Support Rating Floor at 'BB-';

--National long -term rating at 'AA+(gtm)'; Outlook Stable;

--National scale short-term affirmed at 'F1+(gtm)'.

Industrial:

--Long-term foreign currency IDR at 'BB'; Outlook Stable;

--Short-term foreign currency IDR at 'B';

--Long-term local-currency IDR at 'BB'; Outlook Stable;

--Short-term local-currency IDR at 'B';

--Viability Rating at 'bb';

--Support at '3';

--Subordinated Tier I Capital Notes debt at 'B-';

--Support Rating Floor at 'BB-';

--National scale long-term rating at 'AA-(gtm)'; Outlook Stable;

--National scale short-term rating at 'F1+(gtm)'.

Industrial Subordinated Trust:

--Long-term Senior Unsecured Debt at 'BB-'.

Industrial Senior Trust:

--Long-term Senior Unsecured Debt at 'BB'.

G&TC:

--Long-term foreign currency IDR at 'BB'; Outlook Stable;

--Short-term foreign currency IDR at 'B';

--Long-term local-currency IDR at 'BB'; Outlook Stable;

--Short-term local-currency IDR at 'B';

--Viability Rating at 'bb';

--Support at '3';

--Support Rating Floor at 'BB-';

--National scale long-term rating at 'AA-(gtm)'; Outlook Stable;

--National scale short-term rating at 'F1+(gtm)'.

GTC Bank Inc.:

--National scale long-term rating at 'A+(pan)'; Outlook Stable;

--National short term rating at 'F1(pan)'.

Fitch upgraded the following ratings

Contecnica:

--National scale long-term rating to 'AA-(gtm)' from 'A(gtm)'; Outlook Stable;

--National scale short-term rating to 'F1+(gtm)' from 'F1(gtm)'.

Conticredit:

--National scale long-term rating to 'AA-(gtm)' from 'A(gtm)'; Outlook Stable;

--National scale short-term rating to 'F1+(gtm)' from 'F1(gtm)';

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);

--'Assessing and Rating Bank Subordinated and Hybrids Securities' (Jan. 31, 2014);

--'2014 Outlook: Central America and the Dominican Republic' (Dec. 16, 2013);

--'Guatemala' (July 11, 2013).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

National Scale Ratings Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082

Assessing and Rating Bank Subordinated and Hybrid Securities Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732137

2014 Outlook: Central America and the Dominican Republic Insurance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=730995

Guatemala

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=713095

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=832018

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst (Industrial and Banrural)
Franklin Santarelli
Managing Director
+1-212-908-0739
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Primary Analyst (G&TC)
Mark Narron
Director
+1-212-612-7898
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Edgar Cartagena
Director
+503 2516 6613
or
Marcela Galicia
Director
+503 2516 6616
or
Committee Chairperson
Eduardo Santibanez
Senior Director
+56-2-499-3307
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst (Industrial and Banrural)
Franklin Santarelli
Managing Director
+1-212-908-0739
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Primary Analyst (G&TC)
Mark Narron
Director
+1-212-612-7898
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Edgar Cartagena
Director
+503 2516 6613
or
Marcela Galicia
Director
+503 2516 6616
or
Committee Chairperson
Eduardo Santibanez
Senior Director
+56-2-499-3307
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com