Fitch Affirms Banco Bice' IDRs at 'BBB+'; Outlook Stable

SANTIAGO, Chile & NEW YORK--()--Fitch Ratings has affirmed the Chilean Banco Bice's (Bice) Viability Rating VR) and foreign and local currency long-term Issuer Default Ratings (IDRs) at 'bbb+' and 'BBB+', respectively. The Rating Outlook is Stable. The affirmation is part of Fitch's 'Chilean Mid-Sized Banks Peer Review 2016'. A complete list of rating actions is provided at the end of this release.

KEY RATING DRIVERS - VR, IDRs AND NATIONAL RATINGS

Bice's ratings are driven by its intrinsic creditworthiness and are highly influenced by the bank's consistent long-term business strategy that has yielded resilient results across economic cycles. The ratings also factor in Bice's low risk-appetite and sound asset quality while are tempered by the company's small size compared to regional and local peers and weaker capital ratios compared to international peers with similar ratings.

In Fitch's opinion, Bice has demonstrated an adequate ability to balance risks and returns in times of credit stress and volatile financial markets. During 2015, business volume and core revenues increased on average with the system' trends, although net result was affected by increased corporative taxes, extraordinary collective negotiation costs and lower revenues from affiliates. Recurrent operating income, superior assets quality (loan loss provisions accounted only for 17% of earnings before taxes and provisions as of Dec. 31, 2015), and good cost control have been the key for maintaining good operating profit to risk-weighted assets (RWA) at 1.7% average for the past five years. The bank maintained its sound assets quality even in time of greater credit expansion and market volatility.

Adequate credit risk tools and the focus on a relatively lower-risk niche (corporate and high net worth segment) have allowed the bank to maintain strong and stable asset quality ratios, with adequate diversification figures in terms of obligors. Bice's historically low past-due loans ratio (non-performing loans [NPLs] rose 0.26% at Dec. 31, 2015, the lowest in Chile and sound compared to international peers), together with limited loan impairment charges, results in strong asset quality ratios. Prudent loan loss reserve policies provide above-average reserve coverage (7.5x to past-due loans) and include a growing portion of counter-cyclical provisions (0.70% of gross loans as of Dec. 31, 2015). Credit and market risks, in Fitch's view, are well recognized in the balance sheet and reflect a conservative approach. Fitch expects those trends to remain sound although the Chilean economic slowdown would continue in 2016.

Bice's capital position is aligned to its earning-generation capacity and history of limited loan losses. Nevertheless, capital ratios remain below the average of 'bbb+' Latin-American rated banks (median Fitch core capital [FCC] for VR was 11.5% as of year-end 2015) and shows room for improvement. A moderate RWA growth in the past 24 months has permitted to stabilize its FCC to RWA ratio around 9%.

KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR

Bice's Support Rating and Support Rating Floor are based on Fitch's view that the entity is a bank for which there is a moderate probability of sovereign support because the limited relative size of the Chilean banking system makes uncertain the propensity of the potential provider of support to do so. The potential provider of support, Chile, is highly rated (Fitch foreign currency long-term IDR of 'A+'; Stable Outlook) and, in Fitch's opinion, has a moderate propensity to support the bank.

KEY RATING DRIVERS - SENIOR UNSECURED, SECURED AND SUBORDINATED DEBT

Bice's senior unsecured bonds are rated at the same level as the bank's and National long-term rating, considering the absence of credit enhancement or subordination feature.

Fitch rates Bice's National scale subordinated debt two notches below its National long-term issuer rating. The two-notch difference considers the loss severity due to its subordinated nature (after default).

RATING SENSITIVITIES

IDRs, VR, AND NATIONAL RATINGS

The Rating Outlooks for the long-term IDRs and National ratings are Stable. A potential rating upgrade is limited mainly by Bice's relatively modest domestic franchise. Fitch does not foresee any changes over the short term provided the bank's earnings remain stable and balanced by business segment and it maintains its high credit quality.

In addition, downward pressure on Bice's VR could result from a deterioration of its capital position, with FCC ratio falling and remaining below 8%, either from smaller internal capital generation or lower than expected profitability. Bice's VR could also be pressured if operating profit to RWA falls and remains below 1%, or if any unexpected risk deteriorates profitability, capital base or sound assets quality in the medium term.

RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR

Changes in the bank's Support Rating and Support Rating Floor are unlikely. Bice is not considered by Fitch as a domestically important financial institution (D-SIFI) of the Chilean financial system.

RATING SENSITIVITIES - SENIOR UNSECURED AND SUBORDINATED DEBT

Bice's senior and subordinated debt would generally move together with each bank's National long-term rating, with the subordinated debt typically remaining two notches below the bank's National long-term rating.

Fitch has affirmed Bice's rating as follows:

--Foreign and local currency long-term IDRs at 'BBB+'; Outlook Stable;

--Foreign and local currency short-term IDRs at 'F2';

--Viability Rating at 'bbb+';

--Support Rating at '3';

--Support Rating Floor at 'BB+';

--Long-term national rating at 'AA(cl)'; Outlook Stable;

--Short-term national rating at 'N1+(cl)';

--National long-term rating senior unsecured bonds at 'AA(cl)';

--National long-term rating subordinated bonds at 'A+(cl)'.

Fitch has affirmed Bicecorp S.A.'s rating as follows:

--Long-term national rating at 'AA(cl)'; Outlook Stable;

--National long-term rating senior unsecured bonds at 'AA(cl)';

--National long-term rating commercial paper at 'AA(cl)';

--National short-term rating commercial paper at 'N1+(cl)';

--National equity rating at 'Primera Clase Nivel 3(cl)'.

Additional information is available at '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

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1001705

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1001705

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Diego Alcazar
Director
+1-212-908-0396
Latin America Financial Institutions
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Abraham Martinez
Director
+56-2-499-33-17
or
Committee Chairperson
Rene Medrano
Senior Director
+503 2516-6610
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Diego Alcazar
Director
+1-212-908-0396
Latin America Financial Institutions
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Abraham Martinez
Director
+56-2-499-33-17
or
Committee Chairperson
Rene Medrano
Senior Director
+503 2516-6610
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com