NEW YORK--(BUSINESS WIRE)--Fitch Ratings has today placed selected internationals scale ratings of Bancolombia S.A.'s (Bancolombia) and certain foreign subsidiaries on Rating Watch Negative, following the release of its latest financial reports that reflected weaker than expected capital metrics. A full list of rating actions follows at the end of this release. The affected subsidiaries are:
--Bancolombia Panama S.A.;
--Bancolombia Puerto Rico International Inc.;
--Banistmo S.A.
The national scale ratings in Colombia, Panama and Puerto Rico of these entities are not affected, because Fitch's baseline scenario is that a potential downgrade in the global ratings, if any, would be limited to one notch, a scenario that would not alter such national scale ratings.
KEY RATING DRIVERS
VR, IDRs AND SENIOR DEBT - BANCOLOMBIA
The Rating Watch Negative reflects that Bancolombia's ratings could be downgraded after Fitch completes a full review of the bank's capital adequacy metrics. These were particularly affected by the significant depreciation of the local currency, which boosted its USD denominated risk-weighted assets. The Rating Watch Negative will be resolved over the next few months after Fitch forms an opinion on the expected capital metrics of Bancolombia, and the consistency of such metrics with the current rating levels.
Bancolombia's capital ratios declined in 2015 due to changes in the accounting standards (IFRS was introduced starting 2015) and the significant depreciation, given its sizeable assets abroad. While Fitch expected a slight decline in Bancolombia's capital ratios due to continued growth, the reported ratio declined more than originally expected.
According to Fitch's analysis, Bancolombia's Fitch core capital (FCC) ratio fell around 200 basis points (bps) in 2015 (December 2014: 10.06% under IFRS). IFRS was introduced in Colombia in 2015 and this resulted in a decline of Bancolombia's capital mainly through adjustments in goodwill treatment, deferred taxes, employee benefits and consolidation of partly-owned subsidiaries.
During 2015, the USD appreciated about 32% against the Colombian peso, hence Bancolombia's sizable USD assets (about 40% of its assets at year-end 2015 [YE15]) and USD denominated goodwill from previous acquisitions (which the bank booked in its Panamanian subsidiary), plus the recently consolidated Banco Agromercantil since late 2015, increased significantly. Therefore, the currency effect increased the amount of deductions to get Bancolombia's FCC, as well as the amount in local currency of its RWAs. Fitch estimates that the depreciation impact on Bancolombia's FCC ratio was between 150bps and 200bps, although the ultimate effect was partially tempered by the higher contributions of foreign, USD-denominated revenues.
According to Fitch's initial projections, Bancolombia's slower growth plans and sustained internal capital generation, could aid in rebuilding its capital ratios amid a stable economic environment and less volatile exchange rates, which is Fitch's baseline scenario. The bank's management is currently working on a capital plan that should aim to restore the bank's currently stressed capital buffers.
SUBORDINATED DEBT
Bancolombia's subordinated debt is rated one notch below its Viability Rating (VR) to reflect higher expected losses in case of liquidation, but no additional notching for non-performance, and therefore mirror the Rating Watch Negative of the bank's VR. These bonds do not have equity-like features that would merit equity credit according to Fitch's criteria.
BANCOLOMBIA PANAMA
Bancolombia Panama's (BP) Long-term foreign currency IDR is in line with that of its parent, Bancolombia, and therefore this mirrors the Rating Watch Negative of its parent's IDRs. BP is highly integrated with Bancolombia and is a core part of the parent's business strategy in Colombia and Central America.
BANCOLOMBIA PUERTO RICO
Bancolombia Puerto Rico's (BPR) IDRs reflect the potential support it would receive from its main shareholder, Bancolombia S.A., should it be required. BPR is highly integrated with Bancolombia and is a core part of the parent's, which explains that its ratings and the Negative Watch status are aligned.
BANISTMO
Banistmo, S.A.'s (Banistmo) IDR is driven by the potential support it would receive from its parent, Bancolombia, if needed. Banistmo's IDRs are in line with that of Bancolombia's and mirror the Rating Watch Negative of its parent's IDR. Banistmo's VR remains unchanged reflecting that it sustains its intrinsic strength. Banistmo is considered to be a core subsidiary of its parent, due to its key role in Bancolombia's expansion and diversification in the region, its medium-term expected contribution in revenues and assets, and the significant reputational risk that its default would pose to Bancolombia, which explains that its ratings and the Negative Watch status are aligned.
RATING SENSITIVITIES
VR, IDRS, SENIOR AND SUBORDINATED DEBT
Fitch expects to resolve the Rating Watch Negative on Bancolombia's IDRs and VR once it has more clarity on the expected capital ratios that the bank could report in the future. Fitch expects that in the event of a downgrade of Bancolombia's VR and IDRs, this would be limited to one notch from current levels.
Senior and subordinated debt could be downgraded in the same magnitude of a potential downgrade in Bancolombia's IDRs.
BANCOLOMBIA PANAMA, BANCOLOMBIA PUERTO RICO AND BANISTMO
The IDRs of these entities are support-driven and aligned to its parent's. Therefore, these ratings would mirror any changes in Bancolombia's IDRs.
Fitch has placed the following ratings on Rating Watch Negative:
Bancolombia
--Long-Term foreign currency IDR 'BBB+'
--Short-Term foreign currency IDR at 'F2';
--Long-Term local currency IDR 'BBB+'
--Short-Term local currency IDR at 'F2'
--Viability rating 'bbb+';
--Senior unsecured debt 'BBB+';
--Subordinated debt 'BBB';
Bancolombia Panama
--Long-Term IDR 'BBB+';
--Short-Term IDR at 'F2';
--Long-Term Deposits 'BBB+';
--Short-Term Deposits at 'F2'.
Bancolombia Puerto Rico
--Long-Term IDR 'BBB+';
--Short-Term IDR at 'F2';
Banistmo
--Long-Term IDR 'BBB+';
--Short-Term IDR at 'F2';
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=1003540
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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