Fitch Rates Scotiabank Peru's IDR 'BBB'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned the following ratings to Scotiabank Peru S.A.A. (SBP):

--Foreign currency long-term Issuer Default Rating (IDR) 'BBB';

--Foreign currency short-term IDR 'F2';

--Local currency long-term IDR 'BBB+';

--Local currency short-term IDR 'F2';

--Individual rating 'C/D';

--Support rating '2'.

The Rating Outlook is Stable.

Scotiabank Peru's (SBP) IDRs reflect the support it would likely receive from its parent, the Bank of Nova Scotia (BNS, rated 'AA-'), should it be required. The bank's individual ratings consider its strengthened franchise, adequate reserve coverage, improving capital and sufficient liquidity; they also factor in its tough competitive environment, declining asset quality and somewhat lower profitability. The foreign currency IDR is constrained by Peru's country ceiling.

Given SBP's importance to its parent, there is a high probability that the bank would receive support from BNS, should it be required. Support should be forthcoming, provided that SBP does not suffer from a systemic risk event.

Downward risk for SBP's IDRs is very limited given its parent support and Peru's economic prospects, but some pressure on the individual rating could arise from a significant asset quality decline that would impair its performance and erode its reserve and capital cushion.

SBP's performance during 2008 was driven by strong loan growth (due in part to acquisitions) and resilient margins; growth slowed into 2009, but non-interest revenues sustained their contribution. Costs grew in line with the bank's network expansion, but overall efficiency improved as operating revenues grew faster.

Credit costs, on the other hand, increased significantly reflecting the riskier profile of SBP's loan portfolio and the impact of the economic downturn. Nevertheless, profitability remained adequate with an ROAE of 23% and ROAA of 2.4%. Deposits appear more diversified and capital, which was in line with that of its main competitors, has improved thanks to slower growth and retained earnings.

As the Peruvian economy seems to turn the corner, SBP resumes growth and its loan portfolio should see a moderate increase in 2009-2010. Thus, operating revenues should see slower growth in spite of stable margins. Costs are expected to remain under control as the bank tames its expansion but LLP's (mainly from consumer and micro-credit) should continue pressuring the bottom line.

Overall profitability could see some deterioration but is expected to remain positive into 2010. The relatively benign economic prospects, adequate reserves and continued profitability should underpin capital ratios that may decline in the short run but should remain stable around its current levels in the medium term.

SBP is Peru's third largest bank with a market share of about 16% of the system's assets. The bank was created in 2006 from the merger of Banco Sudamericano (BS) and Banco Wiese Sudameris (BWS). A universal bank active across all segments, SBP is owned at 97.7% by BNS (Canada's third largest bank) which is in turn widely held.

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

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