Fitch Affirms BBVA Banco Continental at 'A-'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed BBVA Banco Continental's (BC) Viability Rating (VR) and Issuer Default Ratings (IDRs) at 'a-' and 'A-', respectively. The Rating Outlook is Stable. A complete list of rating actions is provided at the end of this release.

KEY RATING DRIVERS

VR, IDRs AND SENIOR DEBT

BC's local currency IDR remains one notch above Peru's sovereign due to its very strong credit profile. BC's VR reflects its robust franchise, solid asset quality and ample reserves, solid and consistent performance, diversified funding and adequate capital. BC's cautious approach to business and track record of adequate risk management underpin its credit metrics and provide stability amid a less benign operating environment projected during 2016 for Peruvian economy.

BC's moderate risk appetite, adequate credit policies, and risk management tools contribute to maintain its historic asset quality among the best in the region. Although Fitch notes a slightly deterioration trend in the last two years given the less favorable operating environment that affected the loan growth, BC's 90-day past due loan (PDL) stood below 2% at year-end 2015 (YE15) and were covered by ample reserves (2.4x to PDL). Some of these ratios could continue to deteriorate slightly but Fitch expects that it will remain sound and still adequately comparable with regional peers.

In addition, the bank's efficiency and adroit credit risk management that minimizes credit cost have contributed to an operating profit/risk weighted assets (RWA) of 4% for the past five years, although with a clear declining trend. Fitch estimates this ratio should remain strong and above 2% in the medium term considering its robust franchise and diversified business model even under moderate growth.

Good profitability and earnings retention underpin BC's capital, which have declined from its peak in 2011 due to BC's solid growth, with a Fitch Core Capital (FCC) ratio of 10.1% at YE15, below the direct regional peers median (near to 11%) and lags from those of its international peers rated (median of 14.6% for banks with VR level of 'a-' at Dec. 31, 2015). A strong internal capital generation (11.9% in average for the last five years) will continue to be the main source to maintain its capitalization ratios in line with the past levels, altough Fitch considers that recent RWA growth can put some pressure with respect to VR 'a-' rated banks.

In addition, BC's still strong loan loss reserves (LLR) create an additional cushion as LLR exceed 90-day PDLs in an amount equivalent to about 20.5% of FCC. Under the assumption of 100% reserves coverage over 90-day PDLs, the FCC ratio will be around 12%.

Funding is wide based, stable, diversified with a growing share of capital markets and adequate matching in currency and tenure. Capital markets funding provides the bank with lower funding costs and long-term funding, which improves asset/liability matching. In addition, the core Fitch's metric of loans/deposits ratio is above than regional peers (107.1% compared to 98.4% for the region sector median at YE15).

SUPPORT RATING

The Support Rating of '2' reflects Fitch's view that there is high probability of support to BC from its parent BBVA (rated 'A-' /Outlook Stable), if needed, as BC is considered a strategic subsidiary of BBVA.

SUBORDINATED DEBT

As per Fitch's criteria, the subordinated note are rated one notch below BC's VR, reflecting one notch for loss severity, but no notches for incremental non-performance risk relative to the bank's VR. In Fitch's opinion, losses for the bondholders would only arise when and if the bank reaches the point of non-viability, which is why these securities receive no equity credit under the agency's criteria.

CONTINENTAL TRUSTEES (CAYMAN) LTD (CTCL)

Fitch has affirmed the rating of the loan participation notes issued by CTCL at 'BB+'. The notes are secured by the rights to a junior subordinated loan extended to BC. CTLC's notes, rated four notches below the bank's VR, have 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.

CONTINENTAL SENIOR TRUSTEES (CAYMAN) LTD (CSTC)

Fitch has affirmed the rating of the loan participation notes issued by CSTC at 'A-'. The notes are secured by the rights to a senior loan extended to BC, hence, are equalized with the Long-Term Foreign Currency IDR of BC.

CONTINENTAL SENIOR TRUSTEES (CAYMAN) II LTD (CSTCII)

Fitch has affirmed the rating of the loan participation notes issued by CSTCII at 'A-'. The notes are secured by the rights to a senior loan extended to BC, hence, are equalized with the Long-Term Foreign Currency IDR of BC.

RATING SENSITIVITIES

IDRs, VR, AND SENIOR DEBT

Over the medium term, BC's VR and IDR are highly correlated with the strength of the operating environment. A positive rating action on the bank Foreign Currency IDR is not Fitch base case considering current ratings are one notche above the sovereign and due to lag of its FCC according to Fitch benchmark ratios.

On the other hand, BC's Local Currency IDRs could benefit from a significant improvement of its parent's ability to provide support, as evidenced by BBVA's IDR.

Significant Deterioration of its Performance: BC's VR and IDRs would be pressured, individually or collectively, by a sharp deterioration of the bank's performance or a larger than expected decline in asset quality that would erode the capital/reserves cushion (operating profit/RWA below 2%, 90-day PDLs above 3%, and FCC below 9.5%).

SUPPORT RATING

The support rating of BC could be revised upward if the parent rating is materially further upgraded (at least two notched from current BBVA Spain 'A-' IDR).

SUBORDINATED DEBT

The subordinated notes' rating is sensitive to any changes in BC's VR and will typically be rated one notched below BC's VR.

CONTINENTAL TRUSTEES (CAYMAN) LTD, CONTINENTAL SENIOR TRUSTEES (CAYMAN) LTD AND CONTINENTAL SENIOR TRUSTEES (CAYMAN) II LTD

The ratings of the securities issued by these three SPVs would move in line with those of BC.

Fitch has affirmed BC's ratings as follows:

--Long-Term Foreign Currency IDR at 'A-', Stable Outlook;

--Short-Term Foreign Currency IDR at 'F1';

--Long-Term Local Currency IDR at 'A-', Stable Outlook;

--Short-Term Local Currency IDR at 'F1';

--Viability Rating at 'a-';

--Support Rating at '2';

--Senior unsecured debt at 'A-';

--Subordinated debt at 'BBB+'.

Continental Trustees (Cayman) Ltd.

--Junior subordinated loan participation notes at 'BB+'.

Continental Senior Trustees (Cayman) Ltd

--Senior secured loan participation notes at 'A-'.

Continental Senior Trustees II (Cayman) Ltd.

--Senior secured loan participation notes at 'A-'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria

Future Flow Securitization Rating Criteria (pub. 12 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868191

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=1004783

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1004783

Endorsement Policy

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

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Contacts

Fitch Ratings
Primary Analyst
Mark Narron
Director
+1-212-612-7898
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Abraham Martinez
Director
+809 563-2481
or
Committee Chairperson
Claudio Gallina
Senior Director
+55 11 4504 2216
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Mark Narron
Director
+1-212-612-7898
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Abraham Martinez
Director
+809 563-2481
or
Committee Chairperson
Claudio Gallina
Senior Director
+55 11 4504 2216
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com