Correction: Fitch Affirms BBVA Colombia's IDRs at 'BBB+'; Outlook Stable

NEW YORK--()--(This is a correction of a release published July 18, 2016. It updates the referenced criteria to include Fitch's 'Global Bank Rating Criteria - Effective from 20 March 2015 to 15 July 2016.')

Fitch Ratings has affirmed BBVA Colombia S.A.'s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BBB+' and Viability Rating (VR) at 'bbb'. The Rating Outlook is Stable. Fitch has also affirmed the bank's Support and National Ratings. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS

IDRs, NATIONAL RATINGS AND SENIOR DEBT

The bank's IDRs, National and senior debt ratings reflect the support it would receive from its parent should it be required. Given its profitability, growth potential, integration with its parent in terms of franchise, business model and management, BBVA Colombia is considered a strategic subsidiary of its parent Banco Bilbao Viscaya Argentaria (BBVA; rated

'A-'/Stable Outlook) in Latin America.

The affirmation of BBVA Colombia's ratings are driven by the consistency of its overall sound profitability metrics, which is a result of its strong recurring and diversified revenue and growing lending activities.

VR

The bank's comparative conservative risk appetite and adequate capital highly influence its VR. The bank's risk management structure is fully integrated with that of its parent, and it applies to all of BBVA's global risk management policies. BBVA Colombia's capital position, which has remained historically tighter due to strong organic growth, dividend payouts and the parent's matrix policy to minimize excess capital, is the main constraint on the bank's VR. Fitch also considers BBVA Colombia's asset quality, sustained profitability and reserve cushions, which are generally in line with other similarly rated entities. Moreover, BBVA Colombia's stable operating environment and strong risk management processes give an additional level of comfort as to the sustainability of the bank's financial profile.

Sustained profitability and a moderate dividend policy support BBVA Colombia's stable capital ratios (Fitch core capital stabilized around 9.9% at December 2015). The bank's capital is deemed adequate considering its ample loan loss reserves, solid asset quality and risk management, and good profitability. However, the bank's current capitalization levels compare unfavourably with similarly rated international peers (universal commercial banks in a 'bbb' operating environment). Although the bank improved its regulatory capital ratio to 13.51% at YE15 through the use of subordinated debt, these bonds lack equity-like features that would earn it equity credit following Fitch's criteria.

BBVA Colombia's asset quality metrics are stable and compare better than the industry average. This is complemented by sound loan loss reserve coverage of 1.8x impaired loans and about 2.7% of total loans. Fitch believes these levels are adequate considering the high proportion of retail lending and the relatively low reliance on charge-offs. Weaker economic prospects in Colombia may result in a slight cyclical deterioration of the bank's loan quality ratios, but these should remain better than those of its local peer group.

The bank's operating profitability, as measured by Operating Profit to risk-weighted assets (RWAs), increased to 2.5% in recent years (2012 - 2015 average: 2.52%) amid changes in macroeconomic fundamentals, a less liquid market and the effects of central bank policy measures to control inflation. The bank's operating efficiency ratio (cost-to-income) is also strong and continuously improving (YE15: 48.4%). These levels compare favorably with other banks in Latin America.

A large cash and equivalents position coupled with liquid and relatively safe investments contribute to BBVA Colombia's sound liquidity ratios. As a medium-sized bank with ample presence throughout the country, BBVA Colombia 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 (Top 20 38% YE15); all factors that reflect the company is less diversified than larger banks in Colombia. However, while its funding structure relies more on customer deposits, the recent bonds issuances helps to better match assets and liabilities.

SUPPORT RATING

The bank's Support Rating of '2' reflects its role as one of the important subsidiaries of BBVA in Latam. In Fitch's opinion, BBVA Colombia is strategically important for BBVA's strategy and institutional support should be forthcoming, if required. BBVA has a consistent track record of support for its subsidiaries and its ability to support them is illustrated by its 'A-' rating.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

BBVA Colombia's subordinated debt is rated one notch below its IDR to reflect lower expected recoveries, while there is no notching differentiation due to incremental non-performance risk given the terms of the issuances (plain vanilla subordinated debt). It has thus been affirmed due to the affirmation of BBVA Colombia's IDR.

RATING SENSITIVITIES

IDRs, NATIONAL RATINGS AND SENIOR DEBT

The bank's IDRs, National and senior debt ratings would change if Fitch's assessment of its parent's ability and/or willingness to support the bank changes. In general, the IDR's would move in line with those of the parent, subject to country ceiling restrictions.

VR

Upside potential for the VR is limited given the sovereign's current rating and Outlook and BBVA Colombia's capital levels. The VR's could be pressured by severe asset quality deterioration or a dismal performance that would erode its capital and reserve cushion on a sustained manner (90-day PDLs above 3.5% and FCC below 10%).

SUPPORT RATING

BBVA Colombia's Support Rating would be affected by a change in BBVA's ability or willingness to support the bank.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

Subordinated debt ratings will mirror any action on the banks IDR.

Fitch affirms the following ratings:

BBVA Colombia

--Long-Term Foreign-Currency and Local-Currency IDRs at 'BBB+'; --Short-Term Foreign-Currency and Local-Currency IDR at 'F2';

--Support Rating at '2';

--Viability Rating at 'bbb';

--Subordinated debt at 'BBB';

--National Long-Term Rating at 'AAA(col)';

--National Short-Term Rating at 'F1+(col)';

--National senior unsecured debt at 'AAA(col)';

--National Long-Term subordinated debt at 'AAA(col)'.

The Rating Outlook is Stable.

Additional information is available on www.fitchratings.com.

Applicable Criteria

Global Bank Rating Criteria - Effective from 20 March 2015 to 15 July 2016 (pub. 20 Mar 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863501

Metodología de Calificación Global de Bancos (pub. 29 May 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866612

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1009148

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1009148

Endorsement Policy

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

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
Theresa Paiz-Fredel, +1-212-908-0534
Senior Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Sergio Pena, +57-1-4846770
Associate Director
or
Committee Chairperson
Alejandro Garcia, +1-212-908-9137
Managing Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Theresa Paiz-Fredel, +1-212-908-0534
Senior Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Sergio Pena, +57-1-4846770
Associate Director
or
Committee Chairperson
Alejandro Garcia, +1-212-908-9137
Managing Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com