OREANDA-NEWS. May 20, 2016. Fitch Ratings has affirmed Banco de Credito del Peru's (BCP) Viability Rating (VR) and Issuer Default Ratings (IDRs) at 'a-' and 'A-', respectively. The Rating Outlook is Stable. A complete list of rating actions is provided at the end of this release.



BCP's local currency IDR remains one notch above Peru's sovereign due to its very strong credit profile. Its VR reflect the bank's adequate loss absorption capacity, given a dominant franchise, high and sustained profitability and sound credit risk management, together with a strong liquidity and stable and diversified funding. Fitch believes the entity will be able to withstand any occasional deterioration in the operating environment.

Sound risk management policies and diversification allowed BCP to maintain a strong asset quality - 90-day past due loan (PDL) below 2% for more than five years, altough with a slight increasing trend - and were covered by ample reserves (2.4x to PDL) at year-end (YE) 2015, one of the best among peers in the region. At the same time, the bank's diversified business model and resilient margins, improving efficiency and moderate credit cost resulted in a consistent operating profit to risk weighted assets (RWA) at 3.5% in the last five years.

BCP's Fitch core capital (FCC) at 11.1% at YE 2015 compares adequately with that of its regional peers but still lags those of its international peers rated (median of 14.6% for banks with VR level of 'a-' at Dec. 31, 2015). Ample and sustained profitability and earnings retention underpin BCP's capital which should be viewed in the light of its ample reserve coverage (excess reserves attained about 20% of FCC).

Fitch notes that the structural dollarization of the Peruvian banking system creates challenges for banks as the dollar strengthens and expectations for the depreciation of local currency persist. The challenge for banks has mainly come in the form of asymmetric liquidity (ample in dollars, tight in local currency) and some pressures on capital. The bank's funding is ample, well diversified and low cost but the core Fitch's metric of loans / deposits ratio is been increasing the latest two years and above than regional peers (104.9% compared to 98.8% for the region sector median at YE 2015).

While the bank's strength allows it to face these challenges confidently, the structural currency mismatch will take some time to improve. Fitch will continue to monitor the evolution of the de-dollarization efforts and the eventual introduction of structural, long term solutions.


BCP's 34% market share in deposits and its outsize presence in all business segments make it a crucial part of Peru's financial sector. Support from the government should be forthcoming in case of need; Peru's ability to provide such support is reflected in its Sovereign Rating ('BBB+/A-') and underpins BCP's Support and Support Rating Floor ratings.


BCP's subordinated bonds are plain vanilla and lack the features that would earn them equity credit following Fitch's criteria. Their probability of non-performance is equivalent to that of BCP's senior bonds, but they would entail a higher loss severity in case of default due to their subordinated nature. Hence, they are rated only one notch below the bank's VR.

BCP's junior subordinated bonds, rated five notches below the bank's VR, have very strong equity-like features including the non-cumulative deferral of the coupons and a deeper subordination. This notching reflects the incremental non-performance risk relative to that captured by the VR and the loss severity (two notches) given its deeper subordination.



The Stable Outlook reflects Fitch's belief that the bank's strong balance sheet and performance are resilient to eventual downturns and even though some credit metrics may see a slight deterioration, they are likely to remain compatible with its current rating.

Over the medium term, BCP's VR and IDRs are highly correlated with the operating environment. A positive rating action on the bank IDRs is not Fitch base case considering current ratings are one notche above the sovereign and due to lag of its FCC according to Fitch benchmark ratios.

Significantly Weaker Performance: BCP's VR and IDRs could suffer if the bank's asset quality deteriorates significantly causing and erosion of the bank's reserve and capital cushions (FCC below 9.5% and or operating profit to RWA below 2%).


BCP's SR and SRF could be affected if Fitch changes its view of Peru's ability or willingness to support the bank.


The subordinated and junior subordinated debt ratings would move in line with BCP's VR.

Fitch has affirmed BCP's ratings as follows:

--Long-Term Foreign and Local Currency IDR at 'A-', Stable Outlook;
--Short-Term Foreign and Local Currency IDR at 'F1';
--Viability Rating at 'a-';
--Support Rating at '2';
--Support Rating Floor at 'BBB';
--Senior unsecured debt at 'A-';
--Subordinated debt at 'BBB+';
--Junior subordinated debt at 'BB'.