NEW YORK--(BUSINESS WIRE)--Fitch Ratings has today assigned Banco de Occidente S.A. (Occidente) a Viability Rating (VR) of 'bbb' and Issuer Default Ratings (IDRs) of 'BBB'. The Rating Outlook is Stable. A full list of rating actions follows at the end of this rating action commentary.
KEY RATING DRIVERS
VR, IDRs AND NATIONAL RATINGS
Occidente's VR, IDRs and National ratings reflect its strong capital, low-risk and diversified business model and stable, though moderately concentrated, funding. The ratings also consider the bank's good asset quality as well as the challenges arising from the organizational changes that reduced its loan growth during 2014.
Occidente's capital metrics have improved since 2010 based on consistent capital generation and moderate dividend policies. Occidente's Fitch Core Capital Ratio (FCC) has steadily hovered in the 16% - 17% range during 2010 - 2013. At December 2014, its FCC went down to 14.49% after a more than proportional increase of Risk Weighted Assets compared to the increase of the FCC. This is a level considered adequate by Fitch and is above the capital levels shown by its peers.
Occidente's conservative credit and risk management policies and stable economic environment in Colombia resulted in good asset quality (90-day PDLs stood at 1.8% at December 2014) that has remained fairly stable for the past few years and is complemented by sufficient loan loss reserves (2.4x its 90-day PDL portfolio).
As a medium-sized bank with ample presence throughout the country, Banco de Occidente boasts a stable and ample depositor base. Deposits come primarily from institutional and public investors, resulting in higher funding costs compared to banks with a wider retail deposit base and, higher depositor concentration.
Occidente's business model is largely based on commercial banking intermediation, with an increasing participation of low-risk consumer banking products. Occidente has become Aval's vehicle to develop leasing where it had reached a market share of 18%, above its natural market share of about 6.3% by assets at December, 2014.
Occidente introduced important organizational changes during 2014 that contributed to slow loan growth and somewhat affected the collection process (especially between April and September). Hence, the impaired loans/gross loans ratio increased slightly. The bank has since resumed its origination pace and stepped up collection efforts. Fitch expects that this situation will fully normalize during 2015.
SUPPORT RATING
The bank's Support Rating of '2' reflects its role as one of the most important subsidiaries of GA, as the second largest bank of the Group. In Fitch's opinion, Occidente is core for GA's strategy and institutional support should be forthcoming, if required. GA has a consistent track record of support for its subsidiaries and its ability to support them is illustrated by its BBB rating.
RATING SENSITIVITIES
VR, IDRS AND NATIONAL RATINGS
Occidente's Rating Outlook is Stable reflecting Fitch's expectation of no substantial changes in the bank's financial profile over the rating horizon. Nevertheless, the bank's VR, IDRs, and National ratings could be pressured if its performance declines (Operating ROAA below 1%) or its capital weakens (FCC consistently below 13%), though this is not Fitch's base case scenario.
While there is limited upside potential given the current level of the bank and the sovereign's ratings, Occidente's VR and IDR could benefit from a reduction in deposit concentration and more diversified funding, combined with a maintenance of its overall solid asset quality, capital and performance metrics over the medium-term.
Fitch rates the following:
Banco de Occidente S.A.
--Long-Term Foreign Currency IDR 'BBB';
Outlook Stable;
--Long-Term Local Currency IDR 'BBB'; Outlook
Stable;
--Short-Term Foreign Currency IDR 'F3';
--Short-Term
Local Currency IDR 'F3';
--Viability Rating 'bbb';
Support
Rating assigned at 2;
--National Scale Long-Term Rating 'AAA(col)';
Outlook Stable;
--National Scale Short-Term Rating 'F1+(col)'.
Additional information is available on www.fitchratings.com
Applicable Criteria
Global Bank Rating Criteria (pub. 20 Mar 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863501
Additional Disclosures
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985773
Endorsement
Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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