Fitch Affirms Findeter's Support-Driven Ratings

NEW YORK--()--Fitch Ratings has affirmed the support-driven ratings of Financiera de Desarrollo Territorial S.A. - Findeter's (Findeter). A full list of rating actions can be found at the end of this rating action commentary.

KEY RATING DRIVERS - IDRS, NATIONAL RATINGS AND SENIOR DEBT

The ratings of Findeter are aligned with those of the Sovereign, reflecting Fitch's assessment of the Colombian government's willingness and capacity to provide timely support to Findeter, if needed. Although the Colombian government does not explicitly guarantee Findeter's liabilities, Fitch views the entity as an integral arm of the state given its role in facilitating financing for infrastructure to further the government's plans for regional and urban development.

As a wholesale bank which structures its financings to financial institutions as secured general obligations, Findeter's loan portfolio has exhibited low levels of delinquency. Its borrowers, nearly all of which are supervised by the Financial Superintendence of Colombia, include the largest commercial banks in the country. In addition, Findeter's reserves meet the regulatory minimum requirement of 1.0% of gross loans at September 2014, which exceeds the level of anticipated loan losses at that date. However, Fitch considers these reserves to be only adequate given the entity's high average loan size.

Notwithstanding its high asset quality, Findeter's loan portfolio exhibits high levels of borrower concentration characteristic of its wholesale business model. Approximately 97% of Findeter's loan portfolio is concentrated in 20 financial institution borrowers. These consist exclusively of supervised entities with credits in good standing.

Findeter's profitability indicators have traditionally been low, but stable, reflecting its internal targeting of profitability to inflation and its desire to balance commercial returns with its social mission. Since 2012, Findeter's net interest margin has narrowed due to the long-term decline in the DTF benchmark to which the majority of its portfolio is indexed and its relatively limited opportunities for cost reduction. As a result, Findeter's ROAA and internal capital generation has been on a gradual declining trend. In Fitch's opinion, Findeter has adequate scope to adjust its pricing if necessary.

Findeter's capital position compares unfavourably with other apex banks in the region that exhibit similar levels of loan concentration. Findeter's capital consists of entirely Tier I capital, but has declined relative to total assets due to the growth of its balance sheet. Mitigating this trend is the legal restriction on Findeter's ability to distribute cash dividends. However, Fitch anticipates that Findeter's capital position will continue to weaken until a recapitalization plan is put in place.

In terms of funding, Findeter has traditionally relied on certificates of deposit, with a particular reliance on its largest institutional depositors. As a result, Findeter manages a significant structural mismatch between the longer-term maturities of its assets and those of its liabilities. This mismatch is partly mitigated by a 10-year COP946.18 billion issuance in August 2014, representing an important milestone in the company's access to international capital markets.

RATING SENSITIVITIES - IDRS, NATIONAL RATINGS AND SUPPORT RATING AND SUPPORT RATING FLOOR

The bank's IDRs, National and Support ratings and Support Rating Floor are sensitive to a change in Fitch's assessment of the Colombian government's willingness or capacity to provide support, if needed.

Fitch has affirmed the following ratings:

Financiera de Desarrollo Territorial S.A. - Findeter

--Long-term IDR at 'BBB'; Outlook Stable

--Short-term IDR at 'F2'

--Local Currency Long-term IDR at 'BBB+'

--Local Currency Short-term IDR at 'F2'

--Support Rating at '2'

--National Long-term rating at 'AAA(col)'; Outlook Stable

--National Short-term rating at 'F1+(col)'

--2013 Issuance of Ordinary Bonds for COP400.000 million National Rating at 'AAA(col)';

--COP-denominated 10-year Senior Unsecured, Unsubordinated Notes Maturing 2024 at 'BBB+(emr)'

Additional information is available on www.fitchratings.com

Applicable criteria, Global Financial Institutions Rating Criteria, dated 31 January 2014 is available at www.fitchratings.com.

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=944075

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Contacts

Fitch Ratings
Primary Analyst
Mark Narron, +1-212-612-7898
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Sergio Pena, +57-1-326-9999
Associate Director
or
Committee Chairperson
Rene Medrano, +503 2516 6610
Senior Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Mark Narron, +1-212-612-7898
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Sergio Pena, +57-1-326-9999
Associate Director
or
Committee Chairperson
Rene Medrano, +503 2516 6610
Senior Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com