NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed Banco de Costa Rica's (BCR) Issuer Default Rating (IDR) at 'BB+' and short term IDR at 'B'. Fitch also affirms BCRs Viability Rating (VR) at 'bb+'. In addition, the bank's national ratings were also affirmed. A full list of ratings follows at the end of this press release.
KEY RATING DRIVERS - IDRs, SENIOR DEBT, AND NATIONAL RATINGS
The bank's IDRs, senior debt ratings, and national ratings are driven by the potential support of the Costa Rican government (rated 'BB+'; Stable Outlook by Fitch), as stated in the National Banking System Law. According to this law, all state-owned banks have the guarantee and full collaboration of the state. The explicit guarantee allows BCR's long-term IDR, senior debt ratings and outlooks to be aligned with the sovereign rating.
RATING SENSITIVITIES - IDRs, NATIONAL RATINGS AND SENIOR DEBT
Changes in Costa Rica's sovereign rating may trigger changes in the bank's ratings.
KEY RATING DRIVERS-VIABILITY RATING
The bank's VR reflects its strong franchise, ample and diversified deposits, adequate loss absorption capacity -reflected in acceptable capital position and modest reserves coverage for non-performing loans, manageable asset quality and modest profitability.
BCR's franchise is strengthened the sovereign explicit guarantee for the bank's liabilities, its extensive branch network and ample deposit base. BCR is one of the strongest competitors in the Costa Rican banking system, with the second largest market share of loans and deposits. Through its subsidiaries, the bank is able to further diversify non-interest income and to extend its business outside of Costa Rica.
BCR benefits from diversified and stable base deposits. In 2012 was complemented by subordinated debt and a longer term international issuance. In Fitch's view, these changes improved the bank's assets and liabilities management and contributed to reducing mismatches in foreign currency. At the same time, liquidity coverage is adequate and the investments portfolio is actively managed to maintain adequate liquidity support for public deposits and to comply with regulatory capital requirements.
Loan quality deterioration is manageable and similar to 'BB+' rated peers. Non-performing loans increased to 2.0% of total loans as of September 2014 and reserves coverage decreased to 74% of non-performing loans. Reserves coverage is expected to increase over the next 48 months as a new regulatory requirement established mandatory loan loss provisions for low risk credits.
BCR maintained adequate capital metrics, although with a negative trend.
BCR's Fitch Core Capital ratio is in line with its international peers' average at 14.8%; however, the bank holds limited buffer above regulatory capital ratios minimums of 10%. In Fitch's opinion, the USD10 million subordinated debt agreements helps maintain capital metrics and future growth.
Consistent with BCR state owned nature, profitability is modest and below the Costa Rican banking system average. Operating profits are constrained by a narrow margin, high operating expenses and narrow income diversification. Profitability prospects are sensitive to changes in market and economic conditions.
RATING SENSITIVITIES -VR
Upgrades in the bank's VR are unlikely in the foreseeable future, given its strong relation to the government in both sides of the balance sheet.
A downgrade of the Costa Rican sovereign rating will trigger downgrades in the Bank's VR and IDR. A deterioration in capital generation capacity that drives a material reduction in the core capital metrics might also trigger a downgrade in BCR's VR.
KEY RATING DRIVERS -, SUPPORT RATING, SUPPORT RATING FLOOR
BCR's support rating (SR) of '3' reflects Fitch's opinion that there is a moderate probability of support from the state. In Fitch's opinion, the bank has a clear policy roll and the explicit support of the state. Support probability is limited by the sovereign rating. The bank's Support Rating Floor (SRF) is equalized to the sovereign rating, given the explicit guarantee from the government towards the bank and its systemic importance.
RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR
BCR's support SR and SRF are sensitive to changes in the sovereign rating.
Fitch has affirmed the following ratings:
--Long-term IDR at 'BB+'; Outlook Stable;
--Short-term IDR at 'B';
--Long-term local currency IDR at 'BB+'; Outlook Stable;
--Short-term local currency IDR at 'B';
--Long-term senior unsecured bonds at 'BB+';
--Viability Rating at 'bb+';
--Support Rating at '3';
--Support Rating Floor at 'BB+'.
--Long-term national rating at 'AA+(cri)'; Outlook Stable;
--Short-term national rating at 'F1+(cri)';
--Long-term senior unsecured bonds at 'AA+(cri)';
--Commercial paper at 'F1+(cri)'.
Additional information is available on www.fitchratings.com
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);
--'Costa Rica' (Jan. 31, 2014).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria