Fitch Assigns 'BBB-' IDRs to Banco Corpbanca Colombia; Outlook Negative

NEW YORK--()--Fitch Ratings has assigned a 'BBB-' Long-Term Local and Foreign Currency Issuer Default Rating (IDR) to Banco Corpbanca Colombia S.A. (Corpbanca Colombia). The Rating Outlook is Negative. See the full list of rating actions at the end of this release.

Corpbanca Colombia's IDRs are based on its own intrinsic financial and business profile and, therefore, are aligned with the bank's Viability Rating (VR) of 'bbb-'. The Negative Outlook on the FC and LC IDRs reflects the recent revision of Colombia's Rating Outlook to Negative from Stable, since these bank's ratings are heavily influence by Fitch's view on the operating Environment for Colombian banks, which is currently trending negatively.

Corpbanca Colombia established its operation in Colombia in 2012 as part of its parent's, Itau Corpbanca in Chile (former Banco Corpbanca Chile), regional expansion strategy. The parent acquired two well-recognized mid-sized banks oriented toward the corporate segment and middle- to upper-income retail segments. The merged bank represents about 25% of the consolidated assets of Itau Corpbanca in Chile at June 2016 and the footprint in Colombia reaches around 6% of local market share.

KEY RATING DRIVERS

VIABILITY RATING (VR) and IDRS

Corpbanca's Long-Term Local and Foreign Currency IDRs are driven by its 'bbb-' VR. The bank's VR is highly influenced by its capitalization metrics and operating environment. Corpbanca Colombia's ratings also consider its consistent performance, solid asset quality and risk management, earning diversification, and stable funding base.

As stated, the operating environment highly influences Corpbanca Colombia's VR given the challenges associated with the recent revision of Colombia's Rating Outlook to Negative from Stable. The negative trend is explained by a less benign macroeconomic scenario, which could potentially have a negative effect on the bank's capital metrics, asset quality ratios and overall profitability, among others.

Capital injections and no dividend payout commitment during the first years of operation as a merged entity support Corpbanca Colombia's stable capital ratios (Fitch core capital ratio stabilized at around 9.4% at June 2016). The bank's capital is deemed reasonable considering its ample loan loss reserves, solid asset quality and risk management. However, its current capitalization metrics compare unfavorably with similarly rated international peers (universal commercial banks in a 'bbb' operating environment), and is considered by Fitch as the main constraint on the bank's VR. The bank's outstanding subordinated debt is eligible from a regulatory capital perspective, but these bonds are not considered equity under Fitch's criteria, but rather as liabilities.

Corpbanca Colombia's asset quality ratios compare well with similarly rated international peers. This is complemented by sound loan loss reserve coverage of 3.1x impaired loans which make up only about 4.8% of total loans; this partially offsets the high levels of borrower concentrations in its loan portfolio (the top 20 exposures account for roughly 2.2x Fitch core capital). Conservative credit risk policies and appropriate controls consistent with best practices and the requirements of its parent have driven declining exposures to the most vulnerable sectors, helping to maintain sound impairment ratios. Weaker economic prospects in Colombia may result in a cyclical deterioration of the bank's loan quality ratios, but these should remain better than those of its local peer group.

Corpbanca Colombia's profitability is modest given its moderate franchise and limited competitive advantage, which generally constrains the interest margins. Sustainable earnings diversification and efficiency improvements could gradually benefit the bank's performance. Nevertheless, increases in delinquency levels have put upward pressure on loss loan provisions, and operating expenses related to the bank's core banking integration continue to weigh on overall operating profitability.

As a medium-sized bank with ample presence throughout the country, Corpbanca Colombia enjoys a stable and ample depositor base. Deposits come primarily from institutional and public investors, resulting in higher funding costs compared to banks with a wider retail deposit base and higher depositor concentration. The bank's funding plan includes seeking to increase saving deposits, payrolls and retail funding, to reduce the cost of funds and diversify the deposit base, though Fitch expects that material improvements on these will take some time to achieve.

Corpbanca Colombia completed its first year of merged operations in 2015 without any material negative events, while it took advantage of synergies and made progress in achieving its short- and medium-term objectives. Fitch believes that the new structure of Corpbanca Colombia's parent in Chile after the merger between these two important regional players will bring additional benefits to the franchise, its financial profile and the adoption of best practices.

SUPPORT RATING AND SUPPORT RATING FLOOR

The bank's support rating (SR) of '3' and Support Rating Floor (SRF) of 'BB+' are driven by its moderate systemic importance and the growing share of retail deposits, although this is still modest compared to locally systemically important banks. Fitch believes there is a modest probability of receiving sovereign support if the bank were to need it, which underpins its SR and SRF. SRFs indicate the minimum level to which the entity's long-term IDRs could fall as long as Fitch does not change its view on potential sovereign support.

RATING SENSITIVITIES

VR and IDRS

Upside potential for the ratings is limited given the currently modest capitalization levels and Fitch's negative trend on its assessment of the Colombian operating environment, which is in turn aligned with the sovereign's current Negative Outlook.

A significant decline in performance and or weaker asset quality that erodes the bank's Fitch core capital ratio or loan reserve coverage of impaired loans (to below 9% or 100%, respectively) and/or problems with the integration process would negatively affect the bank's VR and IDRs.

Additionally, although Fitch considers the subsidiary's credit profile to be mostly independent from that of its parent, the VR may be pressured in a scenario of further downgrades of the ultimate parent, Itau Unibanco Holding (rated 'BB+'/Negative Outlook), because under Fitch's criteria, the intrinsic credit profile of a subsidiary bank cannot be completely delinked from that of its parent.

SUPPORT RATING AND SUPPORT RATING FLOOR

Upside potential for the SR and SRF is limited, and can only occur over time with a material gain of the bank's systemic importance. These ratings could be downgraded if the bank loses material market share in terms of retail customer deposits.

Fitch has assigned the following ratings:

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

--Long-Term Local Currency IDR at 'BBB-'; Outlook Negative;

--Short-Term Foreign Currency IDR at 'F3';

--Short-Term Local Currency IDR at 'F3';

--Viability rating at 'bbb-';

--Support Rating at '3';

--Support Rating Floor at 'BB+'.

Date of Relevant Rating Committee: Aug. 29, 2016

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=1011115

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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1011115

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Contacts

Fitch Ratings
Primary Analyst
Theresa Paiz-Fredel
Senior Director
+1-212-908-0534
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Sergio Pena
Associate Director
+57 1 4846770
or
Committee Chairperson
Alejandro Garcia
Managing Director
+1-212-908-9137
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Theresa Paiz-Fredel
Senior Director
+1-212-908-0534
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Sergio Pena
Associate Director
+57 1 4846770
or
Committee Chairperson
Alejandro Garcia
Managing Director
+1-212-908-9137
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com