Fitch Affirms Produbanco's IDR at 'B'; Outlook Negative

NEW YORK--()--Fitch Ratings has affirmed Banco de la Produccion S.A. y Subsidiarias' (Produbanco, commercially known as Produbanco Grupo Promerica) Long-term Issuer Default Ratings (IDRs) at 'B'. The Rating Outlook remains Negative. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS

IDRs and VR

Ecuador's operating environment and Produbanco's tightening profitability highly influence the bank's ratings. Fitch also considers Produbanco's good asset quality, ample liquidity, and adequate capital position.

The bank's ratings are constrained by the sovereign given its direct exposure to Ecuador sovereign debt, as well as the impact of the government's macroeconomic and regulatory policies on its performance. The current economic recession and prospects for a weak recovery will limit Produbanco's potential growth, profitability and internal capital-generation capacity.

As of June 2016, operating profits have decreased to 0.63% of average assets (0.95% in 2015), still above market peers.

Produbanco's asset quality, although affected by the economic environment, compares above Ecuadorian and International peers. Fitch anticipates lower delinquency levels by year end 2016, after the cyclical increase in the non-performing loans ratio typically registered at midyear, and once the bank achieves its target growth for the year.

Produbanco's capital position has strengthened, underpinned by lower dividend payments in 2015 and a small contraction in risk weighted assets. Produbanco's Fitch Core Capital (FCC) ratio increased to 11.6% as of June 2016. Fitch expects a moderate increase in assets by year end 2016 which may maintain Produbanco's FCC ratio close to 11%.

In Fitch's view, the bank's liquidity provides sufficient flexibility to respond to the challenging economic environment. At end-June 2016, cash and due from banks accounted for 22.8% of total assets, while liquid assets covered 36.8% of deposits and short-term funding. Liquidity compares favorably with Ecuador's largest banks and with equally rated international peers. Similar to the rest of the Ecuadorian banking system, Produbanco's funding consists mostly of customer deposits (95.45% of total funding) and a small share of wholesale funding. After a contraction in deposits observed towards the end of 2015, deposits have started to recover while the structure of deposits has shifted towards term deposits.

SUPPORT RATING AND SUPPORT RATING FLOOR

Produbanco's Support Rating (SR) of '5' and Support Rating Floor (SRF) of 'NF' indicate that Fitch believes external support cannot be relied upon, due to Ecuador's limited funding flexibility as well as the lack of a lender of last resort.

RATING SENSITIVITIES

IDRs and VR

[Any negative rating action on the sovereign would also lead to a similar action on Produbanco's IDRs and VRs. Furthermore, a significant reduction in the bank's internal capital generation or an acceleration of growth that leads to a decrease in the Fitch Core Capital (FCC) metrics consistently below 9% along with a material decline in excess loan loss reserves could also result in negative rating actions.

SUPPORT RATING AND SUPPORT RATING FLOOR

Ecuador's propensity or ability to provide timely support to these banks is not likely to change given the sovereign's low sub-investment grade IDR. As such, the SR and SRF have no upgrade potential]

Fitch has affirmed the following ratings:

--Long-Term Foreign Currency IDR at 'B'; Outlook Negative;

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

--Viability Rating at 'b';

--Support at '5';

--Support Floor at 'NF'.

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=1014968

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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1014968

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https://www.fitchratings.com/regulatory

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Contacts

Fitch Ratings
Primary Analyst
Theresa Paiz-Fredel
Senior Director
+1-212-908-0534
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Marcela Galicia
Director
+503-2516-6616
or
Committee Chairperson
Alejandro Garcia
Managing Director
+1-212-908-9137
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Theresa Paiz-Fredel
Senior Director
+1-212-908-0534
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Marcela Galicia
Director
+503-2516-6616
or
Committee Chairperson
Alejandro Garcia
Managing Director
+1-212-908-9137
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com