Fitch Assigns 'BBB' IDR to Banco Agrario de Colombia; Outlook Stable

MONTERREY, Mexico--()--Fitch Ratings has assigned the following ratings to Banco Agrario de Colombia S.A. (Banagrario):

--Foreign Currency Long-Term Issuer Default Rating (IDR) 'BBB';

--Foreign Currency Short-Term IDR 'F2';

--Local Currency Long-Term IDR 'BBB+';

--Local Currency Short-Term IDR 'F2';

--Viability rating (VR) 'bb';

--Support Rating '2';

--Support Rating Floor 'BBB'.

The Rating Outlook is Stable.

KEY RATING DRIVERS - IDRs & SUPPORT RATINGS

Banagrario's ratings are driven by the potential support of the Republic of Colombia, rated by Fitch at 'BBB/BBB+'. In Fitch's view, the Colombian government has the ability and willingness to provide timely and sufficient support to Banagrario, if needed. Banagrario's IDRs are aligned with the sovereign's.

The ability to support Banagrario is reflected in the Republic of Colombia's ratings and underpins the bank's support rating of '2' and support rating floor of 'BBB'. Fitch considers that the willingness of the sovereign to provide support is strong given that Banagrario plays an important role in the development of the government's agricultural policy, being the only public bank that serves customers ranging from small local/regional to medium-sized producers. Banagrario is Colombia's main development tool for the agricultural sector being the largest individual source of financing for the sector (around 48% of the total).

KEY RATING DRIVERS - VR

The bank's strong and consistent profitability drives its Viability Rating (VR); however, it is also influenced by its weak credit quality. The bank's adequate margins, low financing costs and moderate operating costs result in a consistent financial performance. Historically, Banagrario's profitability has been above the banking system average, although it was affected by higher loan loss reserves during 2013. Fitch expects Banagrario's return on average assets (ROAA) to remain at around 3%, underpinned by sound loan portfolio growth and recurring income derived from the investment portfolio.

Banagrario's VR also considers its weak loan quality reflected in high non-performing loans (NPLs) and considerable amount of restructured loans. Banagrario's NPLs (i.e. overdue greater than 30 days) ratio reached 8.75% at June 2014 (7.54% at 90 days overdue), a level that compares unfavorably with that of its peers. The combined ratio of NPLs plus restructured loans would almost double that of NPLs.

The bank's asset quality showed considerable deterioration at YE2013 as a result of typical risks associated with the agricultural sector (for example adverse climate conditions and several agricultural strikes). In Fitch opinion, Banagrario's asset quality will remain under pressure due to unexpected events in the agricultural sector that can happen any time, the greater maturity of the consumer lending portfolios, and moderate obligor concentrations. On a positive side, Fitch expects that Banagrario will keep enhancing its loan loss reserves and maintaining its good level of collaterals.

Banagrario's shows a sound capital base (entirely Tier I), which is not encumbered by goodwill or fixed assets. The relatively rapid loan growth resulted in a decline of capital ratios; however, Banagrario's Fitch core capital ratio remains sound (15.7% at June 2014) and above its local and international peers. In Fitch's view, continued high profitability and moderate pay-out dividend should support capital growth going forward.

In terms of funding and liquidity risk, Fitch considers Banagrario's funding to be diversified, in contrast to that shown by other development banks in Latin America with a similar business model. Funding for Banagrario comes from a balanced mix of its low-cost and diversified deposits and from financial resources from state agencies or government funds. Banagrario benefits from the exclusive management of judicial deposits which have low funding cost (23.8% of the bank's total funding as of June 2014). Liquidity risk is carefully controlled.

RATING SENSITIVITIES - IDRS AND SUPPORT RATINGS

As a state-owned development bank, Banagrario's creditworthiness and ratings are directly linked to those of the Republic of Colombia. As such, Banagrario's ratings should move in line with those of the Sovereign.

Downward risk for Banagrario's IDRs & Support Ratings is limited given Colombia's sound economic prospects. Although not a baseline scenario, Banagrario's ratings could change if Fitch perceives a decrease in its strategic importance to the government's public policies.

RATING SENSITIVITIES - VR

Banagrario's VR could be upgraded if the bank improves and sustains an NPL ratio below 6% and considerably reduces its level of restructured loans. In turn, the VR could be negatively affected if the bank fails to sustain its recent improvements in profitability metrics and/or if its Fitch core capital ratios consistently fall below 14%.

Additional information is available on 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

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=933235

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Contacts

Fitch Ratings
Primary Analyst
Alejandro Tapia
Director
+52 818 399 9156
Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes 2612
64920 Monterrey, Mexico
or
Secondary Analyst
Andres Marquez
Director
57 1 326 9999
or
Committee Chairperson
Rene Medrano
Senior Director
+ 503 2516 6600
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Alejandro Tapia
Director
+52 818 399 9156
Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes 2612
64920 Monterrey, Mexico
or
Secondary Analyst
Andres Marquez
Director
57 1 326 9999
or
Committee Chairperson
Rene Medrano
Senior Director
+ 503 2516 6600
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com