S&P: Several Rating Affirmations On Colombian Banks; Colombia BICRA Still Group '6'; Stable Economic And Industry Risk Trends
Bancolombia, S. A. y Companias Subordinadas (Bancolombia; BBB-/Negative/A-3);Banco de Bogota S. A. y Subsidiarias (BBogota; BBB-/Negative/A-3);Financiera de Desarrollo Nacional S. A. (FDN; BBB/Negative/--); andFinanciera de Desarrollo Territorial S. A. FINDETER (Findeter; BBB/Negative/A-2).We also affirmed the ratings on Bancolombia and BBogota's core entities:
Bancolombia Panama S. A. (BBB-/Negative/A-3);Banistmo S. A. (BBB-/Negative/A-3);BAC International Bank Inc. (BIB; BBB-/Negative/A-3);Credomatic International Corp. (BBB-/Negative/A-3).
We maintained our BICRA score on Colombia (foreign currency: BBB/Negative/A-2; local currency: BBB+/Negative/A-2) at group '6'. We also maintained our '7' economic risk score and our '5' industry risk score, which anchors banks operating in the country at 'bb+'.
During the past 12 months, we've been pointing out potential funding vulnerabilities for the Colombian banking system due to a greater dependence on wholesale funding sources--reflected in highly concentrated deposits with respect to regional peers. As a result, our BICRA industry risk for Colombia showed a negative trend. During this time, we've been assessing potential mitigating factors for Colombia's system-wide funding. In our opinion, the continuous development and deepening of the country's domestic debt capital market should provide greater capacity for the government and the private sector to seek funding locally in case of disturbances in external markets. We believe that the local debt capital market represents an alternative funding source for financial institutions and corporations providing medium (three to five years) to long-term funds (greater than seven years) and it constitutes a mitigating factor in terms of funding risk. Consequently, we are revising its industry risk trend to stable from negative.
Colombia's debt capital market is evolving and we now classify it as moderately broad and deep. Even though the local market is relatively small (less than 10% of GDP), it is active in issuing investment grade, and to some extent for non-investment grade, debt for the private sector. After the structural change in the banking industry's funding profile related to "cuenta unica," the central bank is now centralizing financial surpluses from government entities that were deposited in commercial banks. Considering funding needs for the 4G Infrastructure Program (which will demand long-term resources), we expect banks to be more active in the market, oriented toward medium to long term funds. Of the issuances made during the first-half of 2016, 23% were between four and nine years, 32%were up to 10 years, 24% were more than 10 years; the remaining 22% were from one to three years. In that sense, we believe that the domestic debt capital market would be an important contributor for commercial banks to increase their participation of stable funding resources (through medium to long-term financial resources) to face their future stable funding needs.
Colombia's economic risk assessment reflects its slowing economy and deterioration in the country's trade balance, which is mainly due to the low prices of oil and coal. We believe that Colombia's external debt and liability position will weaken further because of reliance on higher debt financing during the next two years to partly finance the widening current account deficit. As a result, higher economic imbalance risks, in our view, would pressure Colombian financial institutions. On the other hand, low-income household levels (GDP per capita is projected to remain below $6,500 during 2016 and 2017) along with modest growth in real wages could raise credit risk in the economy. Peso depreciation, high inflation, as well as the impact of low oil prices on the domestic economy and increasing lending rates, could further pressure household income capacity. Given lower global commodity prices, Colombia's GDP slowed to 3.1% in 2015 and will likely be 2.3% in 2016 and 3.0% in 2017, down from 4.5% in 2014. We believe that the slowing economy could be a drag on domestic credit expansion. Overall, we expect total loans to grow 10%-11% in 2016 and about 12%-13% by the end of 2017, compared with a compound annual growth rate of 20% for the past six years.
Colombian banks' moderate risk appetite and the absence of market distortions support our industry risk assessment. Core deposits have proven stable even during periods of market turmoil; however, credit keeps expanding at a faster pace than total deposits, and the share of retail deposits remains low (estimated below 30% of total deposits). The latter could increase risks because of greater dependence on wholesale funding, which we consider less stable during times of economic and market distress. Since 2016, the central bank is centralizing all government entities' financial surpluses, and commercial banks had to find alternative funding sources to compensate for the exit of those cheap resources. In addition, corporations related to the oil sector and entities whose primary raw materials are denominated in foreign currency have been exposed to low oil prices and to the Colombian peso's significant depreciation against the dollar. Those entities have had lower cash flows and financial resources to channel into the financial system in the form of deposits. In order to replace those funds, banks have been tapping the local debt capital market, which has proved to be moderately broad and deep, allowing investment and non-investment grade entities to access funds with medium to long-term maturities. Moreover, despite recent regulatory changes to strengthen the system's capitalization, we still believe there is room for improvement in Colombia's regulatory framework and track record. However, transparency in Colombia's financial system is, in general, greater than its regional peers.
The trend in economic risk remains stable. We also view the trend for industry risk in Colombia to be stable. In our opinion, the moderating trend in credit expansion observed during the past 12 months is a consequence of prudent underwriting standards in light of challenging economic conditions. Along with an absence of market distortions, these factors will relieve pressure in terms of competitive dynamics. Although we expect credit growth to moderate this year, deposits in the system will likely grow at an even slower pace. This growth rate, along with the relatively low share of retail deposits in the banking industry, could make Colombian banks more vulnerable to external shocks that could squeeze wholesale funding markets. However, we believe that systemwide funding will be neutralized by Colombia's debt capital market, which has proved to be moderately broad and deep in so far as it provides medium to long-term funds to investment grade and non-investment grade entities.
OUTLOOKBancolombiaThe negative outlook on Bancolombia continues to reflect that on the sovereign ratings. Currently, the bank's rating incorporates one notch of government support, given the bank's high systemic importance and our view of the Colombian government as being supportive towards its financial system. Nonetheless, if we were to downgrade the sovereign, which has a negative outlook, we would also downgrade Bancolombia, given its 'bb+' SACP.
Furthermore, we could also downgrade the bank if Bancolombia's RAC ratio falls consistently below 3%, driven by unexpected organic or inorganic growth or/and a higher number of intangibles that are not counterbalance by internal capital generation. Additionally, if asset quality metrics deteriorate significantly, we also could downgrade the bank.
We also expect the bank to maintain its leading business position in Colombia and its solid franchise in Central America. Given the core status of Bancolombia Panama and Banistmo to Bancolombia, the ratings on both will move in tandem with those on the parent. Therefore, these subsidiaries' negative outlooks reflect that on Bancolombia.
Banco DaviviendaThe stable outlook on Davivienda reflects our expectation that the bank will maintain its important presence in Colombia as one of the three largest financial conglomerates in the country, while continuing to strengthen its market position in Central America. We believe that, despite the economic challenges in the region, the bank?s asset quality metrics and its capitalization levels will remain stable for the rest of 2016, supported by its well diversified business activities and its prudent underwriting standards.
If we were to revise Davivienda's SACP downward by two notches, we could downgrade the bank. We believe this is highly unlikely in the next 12-18 months, given the bank's resilience in terms of business stability and diversification of business activities, with a stable dividend payout ratio.
If Davivienda strengthens its RAC ratio consistently above 7% and all other ratings factors remain unchanged, we could upgrade our issuer credit rating. Despite Davivienda's moderately high likelihood of government support--which reflects the bank's high systemic importance and the Colombian government's tendency to support private-sector commercial banks--we don't include any notches of support to the ratings.
Banco de BogotaThe negative outlook on BBogota reflects that on Colombia. The ratings show one notch government support, given the bank's high systemic importance to the Colombian financial system. However, if we were to downgrade the sovereign, which already has a negative outlook, we will downgrade the bank, provided its SACP is 'bb+' at that juncture.
Moreover, if the bank's total adjusted capital (TAC) is pressured by increasing goodwill and higher-than-expected credit expansion (due to Colombian peso depreciation), and, correspondingly, its RAC ratio falls to below 3%, we will revise our SACP and downgrade the bank.
We believe the bank will remain one of the largest players in Colombia and Central America, while maintaining a conservative approach toward risk and liquidity management. Given the core status of BIB and Credomatic, our ratings on both will move in tandem with those on BBogota. Therefore, these subsidiaries' negative outlooks reflect that on BBogota.
Financiera de Desarrollo NacionalThe negative outlook on FDN reflects that on Colombia. Our ratings on FDN currently incorporate three notches of support from its GRE status, which in turn is due to an extremely high likelihood of government support, given the bank's critical role and very strong link to the government. The combination of FDN's 'bb' SACP and 'BBB+' local currency sovereign rating results in a 'BBB' credit rating on the bank, a three-notch uplift from its SACP. However, if we were to downgrade the sovereign, we would also downgrade FDN, provided its SACP is 'bb' at the time.
Financiera de Desarrollo TerritorialThe negative outlook on Findeter is based on our outlook on Colombia. Our ratings on the bank incorporate two notches of government support from its GRE status, which results in a very high likelihood of support given the bank's very important role and very strong link to the government. The combination of bank's 'bb+' SACP and the 'BBB+' local currency sovereign rating results in a 'BBB' credit rating on Findeter, a two-notch uplift from the SACP. We don't expect the bank's GRE status to change during the next two years. However, we could lower the ratings on Findeter following a similar rating action on the sovereign's local currency rating. An upgrade of Findeter is possible following a similar action on the sovereign.
This news release contains forward-looking statements. Company has identified some of these forward-looking statements with words such as "anticipates," "believes," "expects," "estimates," "is likely," "predicts," "projects," "forecasts," "objectives," "may," "will," "should," "plans" and "intends" and the negative of these words or other comparable terminology. These forward-looking statements include statements relating to status of the separation process, the plan to pursue an IPO of up to 20 percent of the common stock of Company and the expected completion of the separation through the subsequent distribution of Company common stock, the anticipated timing of completion of the planned IPO and subsequent distribution of the remaining Company common stock, the plan to reorganize under a new public holding company to be called Company Global Holdings Inc. and Company's and Company's ability to pursue their long-term strategies. In addition, Company may from time to time make forward-looking statements in its annual report, quarterly reports and other filings with the SEC, news releases and other written and oral communications.
Комментарии