NEW YORK--(BUSINESS WIRE)--Fitch Ratings has completed its review of Colombia's five largest banks and their related entities. As a result of the review, the ratings for Bancolombia and Banco Davivienda have been upgraded and the ratings for Banco de Bogota, BBVA Colombia and Banco de Occidente have been affirmed. The Rating Outlook for the ratings is Stable.
The five banks considered in this peer review have market shares between 7% and 22% by assets in the Colombian banking system and together comprise about two thirds of the system's assets. All of them are universal banks and their total assets range from USD14 billion to USD62 billion. The top three banks (Bancolombia, Bogota and Davivienda) have grown inorganically in the past few years and have a significant presence in Central America.
For more details on each individual bank and its affiliates' rating drivers and sensitivities, please refer to the respective press release published today at www.fitchratings.com.
KEY RATING DRIVERS
VR, IDRs AND SENIOR DEBT
Bancolombia's VR and IDR were upgraded because the bank has been able to sustain its Fitch Core Capital Ratio (FCC) at levels above those Fitch expected, supported by moderate, increasing profitability.
Bancolombia's VR and IDR reflect its strong franchise, solid balance sheet, adequate performance, robust asset quality and reserves and ample deposit base, and access to funding. The ratings also reflect the challenges arising from recent acquisitions, since Bancolombia is in the process of integrating Banistmo (rated 'BBB/F2'/Positive Outlook by Fitch). Fitch will continue to monitor Bancolombia's new subsidiaries' performance and their impact on the bank's prospects and credit metrics.
Bogota's ratings reflect its strong franchise, sound asset quality and reserves, consistent and improving performance, conservative credit/risk policies, ample, diversified funding, adequate capital and systemic importance. Fitch's view of Bogota's creditworthiness is tempered by its heightened competitive environment and the risk arising from its on-going diversification abroad and into retail.
Grupo Aval's ratings reflect the sound competitive position and strong performance of its operating companies, as well as the group's, moderate debt, adequate debt service coverage ratios and modest double leverage. Fitch's view of Grupo Aval's creditworthiness also considers the diversification of its business mix towards Central America - a region whose macroeconomic fundamentals lag behind those of Colombia - which introduces a somewhat higher risk in its asset and revenue mix; however, a relevant part of the group's operating income comes from investment grade Central American subsidiaries.
Davivienda's VR and IDR were upgraded as the bank restored its capital to levels in line with its peers and consolidated its performance in spite of the lower (relative to Colombian operations) profitability of its subsidiaries in Central America while improving asset quality and maintaining adequate reserves and liquidity.
Davivienda's VR and IDRs reflect its improved capitalization and profitability are considered key for Fitch in order to keep enhancing the bank's financial profile. Davivienda's ratings also consider its consistent performance, strong asset quality and risk management and its clear long-term strategy and adequate execution. Fitch's view of Davivienda's creditworthiness is tempered by the bank's moderate but improving efficiency, which is weaker than its higher rated international peers (emerging market commercial banks).
The bank's IDRs reflect the expected support from its parent (BBVA; rated 'A-'/Outlook Stable) if it should be required. According to Fitch's rating criteria, BBVA Colombia is considered a strategic subsidiary of BBVA given its position on the Latin American footprint of its Spanish parent, also its profitability, growth potential, integration with its parent in terms of franchise, business model and management were also considered.
BBVA Colombia's VR reflects its good asset quality, sustained profitability and improved capital/reserve cushions, which are generally in line with other similarly rated entities. Moreover, BBVA Colombia's strengthened risk management processes and the stable operating environment in Colombia give an additional level of comfort as to the sustainability of these indicators.
Occidente's VR, IDRs and National ratings reflect its strong capital, low-risk and diversified business model and stable, though moderately concentrated, funding. The ratings also consider the bank's good asset quality as well as the challenges arising from the organizational changes that reduced its loan growth during 2014.
Fitch has published Rating Action Commentaries (RACs) for each of these banks, which are available on www.fitchratings.com and www.fitchratings.mx. These RACs include each issuer's key rating drivers and sensitivities, as well as the list of all rating actions taken.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Bank Rating Criteria' (March 20, 2015).
Global Bank Rating Criteria (pub. 20 Mar 2015)