NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed Banco de Credito del Peru S.A.'s (BCP) Viability Rating (VR) and Issuer Default Ratings (IDRs) at 'a-' and 'A-', respectively. A full list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
VR, IDRs AND SENIOR DEBT
BCP's VR, IDRs and senior debt ratings reflect its sound asset quality, solid performance and strong balance sheet based on dominant franchise, strong market positioning, sound credit origination and generally cautious approach to business.
Sound risk management policies and diversification allowed BCP to maintain a very strong asset quality - 90-day PDLs below 1.9% of the gross portfolio for more than five years - and ample reserves that covered PDLs 2.3 times (x) at year-end (YE) 2014. At the same time, the bank's resilient margins, improving efficiency and moderate credit cost resulted in a consistent operating ROAA above 2%.
BCP's core capital continues to compare well with that of its peers (around 10% in the last five years). Sustained profitability and earnings retention underpin BCP's capital which should be viewed in the light of its ample reserve coverage (excess reserves attained about 22% of Fitch Core Capital), sound profitability, and robust asset quality.
Fitch notes that the structural dollarization of the Peruvian banking system creates challenges for banks as the dollar strengthens and expectations for the depreciation of local currency persist. The challenge for banks has mainly come in the form of asymmetric liquidity (ample in dollars, tight in local currency) and some pressures on capital.
While the bank's strength allows it to face these challenges confidently, the structural currency mismatch will take some time to improve. Fitch will continue to monitor the evolution of the de-dollarization efforts and the eventual introduction of structural, long term solutions.
The Stable Outlook reflects Fitch's belief that the bank's strong balance sheet and performance are resilient to eventual downturns and even though some credit metrics may see a slight deterioration, they are likely to remain compatible with its current rating.
SUPPORT RATING AND SUPPORT RATING FLOOR
BCP's 34% market share in deposits and its outsize presence in all business segments make it a crucial part of Peru's financial sector. Support from the government should be forthcoming in case of need; Peru's ability to provide such support is reflected in its Sovereign Rating ('BBB+/A-') and underpins BCP's Support and Support Rating Floor ratings.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
BCP's subordinated bonds are plain vanilla and lack the features that would earn them equity credit following Fitch's criteria. In Fitch's opinion, their probability of non-performance is equivalent to that of BCP's senior bonds, but they would entail a higher loss in case of default due to their subordinated nature. Hence, they are rated only one notch below the bank's VR.
BCP's junior subordinated bonds, rated five notches below the bank's VR, have very strong equity-like features including the non-cumulative deferral of the coupons and a deeper subordination. This notching reflects the incremental non-performance risk relative to that captured by the VR and the loss severity (two notches) given its deeper subordination.
BCP EMISIONES LATAM 1
BCP Emisiones Latam 1 (BCPEL1) is a special purpose vehicle incorporated in Chile with the sole purpose of issuing local bonds guaranteed by promissory notes from BCP. Hence, BCPEL1's bond ratings are tied to BCP's VR. The national scale rating of the issuances of this vehicle was affirmed at 'AA+(cl)'.
RATING SENSITIVITIES
VR, IDRs AND SENIOR DEBT
Sustained Financial Strength: Over the medium term, BCP's VR and IDRs are highly correlated with the strength of the Peruvian economy; should the economic environment continue to improve - including lower dollarization and stronger sovereign ratings - and, should the bank maintain a consistent performance and its structural strengths - including a FCC above 12% - BCP's ratings could be upgraded.
Significantly Weaker Performance: Though not Fitch's base case, BCP's VR and IDRs could suffer if the bank's asset quality deteriorates significantly and hinders BCP's performance causing and erosion of the bank's reserve and capital cushions (FCC consistently below 9.5% and or Operating ROAA below 1%).
SUPPORT RATING AND SUPPORT RATING FLOOR
BCP's SR and SRF could be affected if Fitch changes its view of Peru's ability or willingness to support the bank.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
The subordinated and junior subordinated debt ratings would move in line with BCP's VR.
BCP EMISIONES LATAM 1
BCPEL1's bond ratings would move in line with BCP's VR.
Fitch has taken the following rating actions on BCP:
--Long-term foreign currency IDR affirmed at 'A-', Stable Outlook;
--Short-term foreign currency IDR affirmed at 'F1';
--Long-term local currency IDR affirmed at 'A-', Stable Outlook;
--Short-term local currency IDR affirmed at 'F1';
--Viability rating affirmed at 'a-';
--Support rating affirmed at '2';
--Support floor affirmed at 'BBB';
--Senior unsecured debt affirmed at 'A-';
--Subordinated debt affirmed at 'BBB+';
--Junior subordinated debt affirmed at 'BB'.
In addition, Fitch has affirmed the following rating for BCP Emisiones Latam 1 S.A.:
--Senior unsecured notes affirmed at 'AA+'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Bank Rating Criteria' (March 20, 2015).
Applicable Criteria and Related Research:
Global Bank Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863501
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985184
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