S&P: Banco Internacional de Costa Rica S. A.'BB-/B' Ratings Affirmed; Outlook Remains Negative
Credit ratings reflect our view of BICSA's adequate business position in the region's highly competitive trade finance sector, adequate capital and earnings assessment underpinned by our projected RAC ratio of about 8.3% for the 18 months, adequate risk position stemming from low and very manageable nonperforming assets (NPAs) and credit losses, and average funding structure and adequate liquidity. The bank's stand-alone credit profile (SACP) remains at 'bb'.
Our ratings also include our view of BICSA as a government-related entity (GRE) in the Republic of Costa Rica because the two largest public banks in the country are the BICSA's main shareholders. Nonetheless, we view the bank as having limited importance and limited link with the government. As a result, we base our rating on BICSA solely on its SACP, rather than on expected extraordinary support from the government of Costa Rica. These assessments stem from the following factors:BICSA's limited importance role to the government, because we believe the former acts as a profit-seeking bank in a very competitive environment, and its activities, in our opinion, could be easily undertaken by a private entity; andIts limited link with the government given that the latter may not be willing to provide support, if needed, on a timely basis. Although BICSA's SACP is higher than the 'BB-' rating on Costa Rica, the rating on the bank reflects our assessment of BICSA's potential resilience to the sovereign's hypothetical default. For an entity to be rated above the relevant sovereign's foreign currency rating, it should be able to pass a hypothetical sovereign foreign currency default stress test. We applied the stress test to the foreign currency rating on the sovereign to which BICSA has the largest exposure (around 45% of its loan exposure in Costa Rica as of June 2015) and whose foreign currency rating is lower than the potential credit rating on the bank.
For a financial institution to pass the stress test, the bank needs: liquidity that would remain sufficient; equity that would be greater than 0; and available regulatory capital. In that sense, after applying the stress test assumptions--and according to our assessment of BICSA's resilience to a hypothetical default of Costa Rica--the bank's liquidity would remain sufficient and its capital positive. However, the bank wouldn't meet the minimum regulatory capital requirements, which is 8%. Its regulatory capital would decrease to 7.35% under this scenario from 12.4% as of June 30, 2016. In this regard, given our assessment of BICSA's low systemic importance, we don't expect the regulator to provide any regulatory forbearance that would allow BICSA to remain a going concern. As a result, the sovereign ratings continue to constrain our foreign currency ratings on the bank. Therefore, our ratings on BICSA will move in tandem with those on Costa Rica.