Fitch Affirms Fondo Mivivienda's IDR at 'BBB+'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the Long-Term Foreign Currency Issuer Default Ratings (IDRs) of Fondo Mivivienda (FMV) at 'BBB+'. Fitch has also upgraded FMV's Local Currency (LC) Short-Term (ST) IDR to 'F1' from 'F2', in line with the sovereign's recently assigned LC ST IDR. The Rating Outlook is Stable. See the full list of rating actions at the end of this release.

KEY RATING DRIVERS

IDRS, SUPPORT RATINGS AND SENIOR DEBT

FMV's IDRs, Support Rating and senior debt ratings reflect Fitch's perception that FMV would likely receive support from its owner, the Government of Peru, should it be required. Although there is not an explicit guarantee, FMV plays a key role in implementing economic development policies, is fully owned by the state, and has many operational and financial synergies with the public administration. Peru's ability to support FMV is reflected in its sovereign rating ('BBB+'/Outlook Stable).

The ratings consider the high strategic importance of FMV in promoting and financing housing in Peru (especially in the social interest segment), and its critical role in the government's public policies to reduce the still elevated housing deficit in the country. The company is the largest provider of social housing financing in Peru. At year-end 2015, FMV's loans accounted for almost 25% of the residential mortgage loans outstanding in the Peruvian market.

FMV's financial performance remains limited by its low margins. Profitability has declined from 2014 due to increased funding cost, loan impairment charges, and hedging costs related to its funding exposure to the CHF and USD.

FMV is a wholesale development bank which structures general obligation loans to supervised financial institutions. Its loan portfolio has historically exhibited near 0% delinquency, benefitting from exposure to the largest commercial banks in the country. However, FMV bears part of the final debtors' credit risk through its credit risk coverage (CRC). Considering final borrowers, 2.9% of the loans were impaired at June 2016, greater than the impaired loans as of December 2015, due to one specific small financial institution that failed.

FMV's wholesale role, the size of the market and the relatively limited number of entities in the local financial sector has resulted in relatively elevated concentrations per borrower, with the four main exposures accounting for 1.2x equity. The risk is somewhat mitigated by the sound credit standings of the main debtor banks.

Over the last four years, the company has made significant strides in diversifying this funding base. FMV relies on local and international issuances to diversify and on better matching its assets and liabilities; however, additional funding facilities and providers would be desirable in order to avoid the risks of currency and full concentration in public debt market.

Capital robustness continues to be one of its main strengths, comparing favorably to other peers. FMV's Fitch core capital ratio equalled 113% (at June16), a level that is deemed adequate given its limited profitability and its ample concentrations.

Government influence manifests directly in the appointment of board members and indirectly through the selection of the executive officers by the board.

RATING SENSITIVITIES

IDRS, SUPPORT RATINGS AND SENIOR DEBT

FMV's ratings will mirror any potential change in Peru's sovereign ratings, which currently have a Stable Outlook. Although not a baseline scenario, FMV's ratings could change if Fitch perceives a decrease in the bank's strategic importance to the government's public policies.

The rating actions are as follows:

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

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

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

--Short-term Local Currency IDR upgraded to 'F1' from 'F2';

--Support rating affirmed at '2';

--Support floor affirmed at 'BBB+';

--Senior unsecured debt affirmed at 'BBB+'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Global Bank Rating Criteria (pub. 15 Jul 2016)

https://www.fitchratings.com/site/re/884135

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1012422

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1012422

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 Street
New York, NY 10004
or
Secondary Analyst
Sergio Pena
Associate Director
+ 571 307 5180
or
Committee Chairperson
Veronica Chau
Senior Director
+ 503 2516 6610
or
Media Relations
Elizabeth Fogerty, New York, +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 Street
New York, NY 10004
or
Secondary Analyst
Sergio Pena
Associate Director
+ 571 307 5180
or
Committee Chairperson
Veronica Chau
Senior Director
+ 503 2516 6610
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com