NEW YORK & SANTIAGO, Chile--(BUSINESS WIRE)--Fitch Ratings has affirmed Cooperativa del Personal de la Universidad de Chile Ltda's (Coopeuch) Long-Term Foreign- and Local-Currency Issuer Default Rating (IDR) at 'BBB' and Viability Rating (VR) at 'bbb'. The Rating Outlook is Stable. A complete list of rating actions follows at the end of this release.
KEY RATING DRIVERS - IDRs, VR, SENIOR UNSECURED DEBT AND NATIONAL RATINGS
Coopeuch's IDRs and National Ratings are based on its VR, which reflects, and is limited by, its niche franchise in consumer lending focused on public servants and the incipient expansion to the private sector. While Fitch acknowledges the strong position that Coopeuch has developed and maintained in its target market, it still has a moderate franchise and relatively concentrated business model when compared to other local and regional banks.
Coopeuch's ratings also reflect its solid capitalization, good historical performance, adequate portfolio quality and the diversification of its funding.
In Fitch's opinion, Coopeuch's strategy to expand into the private sector provides additional opportunities for growth and diversification, although it also increases the risk in its loan portfolio as it becomes more exposed to economic cycles. In addition, the recent modification to the law on cooperatives allows Coopeuch to diversify its business model and revenue sources in the medium term. Additionally, in Fitch's opinion, the difficult situation of other non-bank financial institutions that target similar segments as Coopeuch could provide the latter with stronger growth opportunities.
Coopeuch's profitability is strong and consistent with the risk profile
of its portfolio (mainly consumer loans), and has consistently been
higher than the average of the financial system, underpinned by its
relatively wide net interest margins and good cost efficiency. After the
2010 - 2013 pressure on profits, Coopeuch has been able to adequately
adapt its business model restricting loans with direct payment resulting
in a profitability recovery (2014 - 2015), due to lower provisioning
expenses and higher net interest revenue and commissions. Fitch expects
Coopeuch's results to remain relatively stable in the medium-term and to
improve further once the Chilean economy resumes its growth at higher
In spite of the marked slowdown of the Chilean economy, Coopeuch's past due loans (PDL) and charge offs have decreased since 2014 and, in Fitch's opinion, they remain adequate for its business model. At March 31, 2016 PDLs represented 4.91% of gross loans and net charge offs, 3.84% of total loans, down from 5.04% and 4.60% at Dec. 31, 2014. Reserve coverage is adequate at 1.12x PDL.
Funding for Coopeuch has diversified over the past years. Retail founding, as well as equity, are the main sources of funding and represented 69% of total assets as of Dec. 31, 2015. Wholesale funding includes long-term bonds (22% of total liabilities and equity), deposits from institutional investors (7%) and bank loans (2%).
Coopeuch has historically shown solid capitalization levels, which has improved over the past five years. As of March 31, 2016, its Fitch Core Capital ratio improved to 41.22%, and its regulatory capital, which is entirely core capital, represented 40.28% of risk-weighted assets, vastly exceeding the 12.6% average reported by the banking system as of March 2016.
Coopeuch's senior unsecured bonds are rated at the same level as its IDR and National Rating, considering the absence of credit enhancement or a subordination feature.
IDRs, NATIONAL RATINGS AND SENIOR DEBT
The Rating Outlook for the Long-Term IDRs and National Rating is Stable. Downward ratings pressure could stem from deterioration in the entity's asset quality indicators leading to an increase in loan loss provisions that result in a sustained decline in operating profitability to below 2% of total assets.
The potential for a rating upgrade would stem from further diversification of its business model or revenue sources, while also further enhancing its franchise and maintaining its sound financial profile. Fitch believes there is upside potential based on the agency's assessment of Coopeuch's franchise; but this is more likely to materialize over the medium term.
The rating on Coopeuch's senior unsecured bonds will move in line with its National Long-Term Rating.
RATING SENSITIVITIES - SUPPORT AND SUPPORT FLOOR RATINGS
Changes in the bank's support rating and support rating floor are unlikely. The probability of sovereign support is low given Coopeuch's limited relative size in the Chilean banking system.
Fitch has affirmed the following ratings:
--Long-Term Foreign- and Local-Currency IDR at 'BBB'; Outlook Stable;
--Short-Term Foreign- and Local-Currency IDR at 'F2';
--Viability Rating at 'bbb';
--Support Rating at '5';
--Support Floor at 'No Floor';
--National Long-Term Rating at 'AA-(cl)'; Outlook Stable';
--National Short-term Rating at 'N1+(cl)';
--National Long-Term Rating of bond program at 'AA-(cl)'.
Additional information is available on www.fitchratings.com.
Global Bank Rating Criteria (pub. 20 Mar 2015)
Dodd-Frank Rating Information Disclosure Form