NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed Banco de Desarrollo Rural's (Banrural) Issuer Default Rating (IDR) at 'BB', short-term IDR at 'B', and Viability Rating (VR) at 'bb'. The Rating Outlook is Stable. Banrural's National Ratings were also affirmed. A complete list of all ratings follows at the end of this press release.
KEY RATING DRIVERS - VR, IDRs, AND NATIONAL RATINGS
Banrural's VR drives its IDR and National Ratings. The key rating drivers with the highest influence on the bank's VR include its robust profitability, solid capitalization and weaker operating environment. The ratings also take into account Banrural's significant government exposure. The Stable Outlook reflects Fitch's expectation of no material changes in the bank's overall financial profile over the rating horizon.
In Fitch's opinion, Banrural maintains good capital levels thanks to its solid capital generation capacity and moderate payout of dividends. Its Fitch core capital to risk-weighted assets stood at 15.7%, comparing positively with its main local peers and similarly rated international banks. Banrural's growth is dynamic and often exceeds the market; however, in the agency's view, it is in line with the bank's high internal capital generation capacity.
Banrural's profitability is above similarly rated peers and consistently exceeds the Guatemalan market average. The bank's ROAA of 2.31% reflects the high net interest margins characteristic of its microfinance orientation. Banrural's moderate efficiency ratios and relatively limited income diversification are partially compensated by sustainably low credit costs.
Banrural's good credit quality reflects the bank's adequate underwriting practice; effective collection process and employee incentive programs to support low delinquency levels. Non-performing loans account for a low 0.67% of total loans and are sufficiently covered with reserves. Banrural's loan portfolio concentration is moderate, as is its foreign currency exposure.
In Fitch's opinion, the bank's capacity to maintain its stable and diversified deposit base is a result of the strength of the bank's franchise, its ample geographic coverage in rural areas and unique capacity to continue growing in those regions. Customer deposits are stable and maintain a positive trend.
Banrural maintains moderate exposure to public sector deposits (22% of total deposits), and significant concentration in government bonds (54% of total investments). The Guatemalan Government also holds a 17.2% stake in Banrural.
Fitch views Banrural's liquidity coverage as adequate, in light of its stable deposit base. A high proportion of loans with duration below five years minimize liquidity gaps in the short term. Banrural's loan to deposits ratio is below market average at 75% and liquidity coverage of deposits and short-term funding of 43% also compares favorably with its peers. High concentration in government securities is a concern but is unlikely to change given the limited investment options in Guatemala.
RATING SENSITIVITIES - IDRS, VR AND NATIONAL RATINGS
Banrural's IDRs and VR are at the same level as Guatemala's sovereign rating. Given the operating environment's high influence on Banrural's VR as well as concentrations with the government, changes in the sovereign's ratings may result in a similar action on Banrural's ratings.
Fitch does not anticipate changes in the bank's credit profile that may lead to a modification of its ratings. However, the unlikely scenario of a sharp decline in capitalization (below 10%) and a period of sustained low earnings (operating ROAA close to 1%) may result in a downgrade of the bank's VR, IDR and national ratings. As the sovereign currently has a Stable Outlook, upside potential for Banrurals' ratings is limited.
KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR
Banrural's support rating (SR) of '3' reflects Fitch's opinion that there is a moderate probability of support from the state, given Banrural's systemic importance in the banking system. This probability is limited by Guatemala's sovereign rating of 'BB'/Outlook Stable. The bank's Support Rating Floor (SRF) is one notch below the sovereign rating at 'BB-'. The bank's SRF reflects 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.
RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR
Banrural's support SR and SRF are sensitive to changes in the sovereign rating.
Fitch affirms the following ratings:
Banco de Desarrollo Rural:
--Long-term Issuer Default Rating (IDR) at 'BB'; Outlook Stable;
--Short-term IDR at 'B';
--Local currency long-term IDR at 'BB'; Outlook Stable;
--Local currency short-term IDR at 'B';
--Viability Rating at 'bb';
--Support Rating at '3';
--Support Rating Floor at 'BB-';
--National long-term rating at 'AA+(gtm)'; Outlook Stable;
--National short-term rating at 'F1+(gtm)'.
Additional information is available on www.fitchratings.com.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);
--'National Scale Ratings Criteria' (Oct. 30, 2013);
--'2015 Outlook: Central America and Dominican Republic Banks' (Jan. 8, 2015);
--'Guatemala' (June 20, 2014).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
National Scale Ratings Criteria
2015 Outlook: Central America and Dominican Republic Banks