Fitch Affirms Banco Internacional del Peru S.A.A. at 'BBB+'; Outlook Stable

NEW YORK--()--Fitch Ratings has today affirmed Banco Internacional del Peru S.A.A.'s (Interbank) Viability Rating (VR) and Issuer Default Ratings (IDRs) at 'bbb+' and 'BBB+', respectively. The Rating Outlook remains Stable. A full list of rating actions is at the end of this release.

KEY RATING DRIVERS

IDRS, VR AND SENIOR DEBT

The bank's IDRs are driven by its VR and standalone strength. They reflect the bank's information-intensive risk management framework, strong underwriting and effective collections efforts.

Interbank's loan quality indicators showed modest deterioration over the course of 2015, primarily in its credit card and payroll loan portfolio affected by slower economic growth. Interbank's loan quality indicators continued to compare favourably with the financial system as a whole, despite the bank's relatively greater retail orientation. Past due loans greater than 90 days (90-day PDLs) rose to 2.2% at year-end (YE) 2015 from 1.9% the year prior, mitigated by relatively low borrower concentration levels and reserve coverage of 209%. In addition, the bank reported substantial gains in reducing loan dollarization to 29.2% from 37.4% of net loans during 2015.

Ratings also reflect Interbank's consistently strong profitability, benefitting from stronger growth in higher-margin products, a larger contribution from fee income, and better operational efficiency. Notwithstanding a disproportionate growth in cash and other non-earning assets, operational profitability increased to 3.2% in 2015 from 3.1% the year prior. In addition, Interbank's operating expenses have consistently trended downwards to 3.7% of average assets in 2015 compared to a rate of 6.4% in 2008 due in part to increased focus on digital service channels.

Interbank's capital is adequate but was slightly pressured in 2015 due to the appreciation of U.S. dollar denominated assets. Fitch core capital remained stable at 9.6% of risk weighted assets at YE 2015 and its regulatory capital of 15.5% compared favourably with the banking system average (14.2%). Fitch sees the bank's cushion against unexpected losses also considering its large loan loss reserves (2.8% of total assets) as well as USD200 million in Tier I compliant junior subordinated debt and USD518.7 million in Tier 2 compliant subordinated debt equivalent.

The bank's funding and liquidity profile marks a key strength. Interbank has made significant gains in attracting a stable, retail deposit base, ranking fourth in customer deposits with a market share of 12%. Like the financial system as a whole, Interbank's loan de-dollarization has outpaced its deposit de-dollarization. The central bank has encouraged banks to de-dollarize by facilitating long-term currency swaps. In Fitch's opinion, the central bank has the capacity and propensity to continue providing these facilities over the longer term, given Peru's strong external liquidity and large FX reserves, as well as the moderate size of private credit (44.8% of GDP at March 2016). In terms of liquidity, Interbank manages to conservative liquidity limits in both currencies, comparing favourably to the system as a whole.

SUPPORT RATING AND SUPPORT RATING FLOOR

Interbank's Support Rating and Support Rating Floor reflect Interbank's sizeable market share in deposits, its presence in all business segments, as well as the Republic of Peru's capacity to provide support should it be required.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

Interbank's subordinated bonds are plain vanilla and are not assigned equity credit under Fitch's criteria. In Fitch's opinion, their probability of non-performance is equivalent to that of Interbank'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.

Interbank's junior subordinated bonds, rated four notches below the bank's VR, have 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.

RATING SENSITIVITIES

VRs, IDRS, AND SENIOR DEBT

Given its current rating, there is little upside potential for Interbank's VR and IDRs. Interbank's ratings could be downgraded if a severe decline in asset quality (PDLs above 4%) or weak profitability erode its capital (FCC below 9%) and reserve cushion.

SUPPORT RATING AND SUPPORT RATING FLOOR

Interbank's Support Rating (SR) and Support Rating Floor (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 Interbank's VR.

Fitch has affirmed the following ratings:

Banco Internacional del Peru S.A.A. (Interbank)

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

--Short-Term Foreign Currency IDR at 'F2';

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

--Short-Term Local Currency IDR at 'F2';

--Viability Rating at 'bbb+';

--Support Rating at '2';

--Support Rating Floor at 'BBB';

--Senior unsecured debt at 'BBB+';

--Subordinated debt at 'BBB';

--Junior subordinated debt at 'BB'.

Summary of Financial Statement Adjustments -

"Deferred tax assets" were adjusted, deducting generic provisions and re-allocating them to "Other Assets".

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

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1004785

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1004785

Endorsement Policy

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

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Contacts

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