OREANDA-NEWS. Fitch Ratings has downgraded Banca Privada d'Andorra's (BPA) Long- and Short-term Issuer Default Ratings (IDRs) to 'Restricted Default' (RD) from 'B+' and 'B', respectively, and its Viability Rating (VR) to 'f' from 'b+', following the adoption of temporary precautionary measures that include limits on withdrawals. The ratings were removed from Rating Watch Negative (RWN).

On 10 March 2015 the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) named BPA as a foreign financial institution of primary money laundering concern. Its proposed rulemaking triggered, among other factors, the intervention of the entity by the Institut Nacional Andorra de Finances, the Andorran financial system authority, and of its subsidiaries in Spain by the Bank of Spain and in Panama by the Superintendency of Banks, caused the board of directors and several senior managers to resign and led to the application of insolvency proceedings of the bank's Spanish subsidiary.

On 16 March BPA's provisional administrators agreed to limit account movements to EUR2,500 per week and per account. This decision was taken in response to BPA's difficulties in its basic functioning after FinCEN's allegations.

KEY RATING DRIVERS - IDRs AND VR
Fitch acknowledges that the temporary measures were taken to safeguard the stability of the institution, preserve the interests of clients and to ultimately protect BPA's solvency and liquidity. However, the further downgrade of BPA's IDRs and VR reflects Fitch's view that the temporary restrictions on account movements represent a default on a material category of BPA's third-party, private sector senior debt that is commensurate with IDRs at 'RD' and a VR at 'f'. Deposits accounted for 45% of BPA's balance-sheet at end-2013.

According to Fitch's rating definitions, 'RD' ratings indicate an issuer, as is the case for BPA, that has experienced an uncured payment default of a bond, loan or other material obligation but has not entered into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedures, and which has not otherwise ceased operating.

BPA's 'f' VR reflects Fitch's opinion that BPA has failed as it has defaulted on its senior obligations to third-party, non-government creditors.

In the absence of the temporary measures that have been adopted, Fitch believes that BPA's liquidity would have come under further pressure. Its solvency is also likely to be impacted, for example by the insolvency proceedings that have been filed by its Spanish subsidiary, Banco Madrid. BPA's stake in Banco Madrid represents a sizeable portion of its equity.

RATING SENSITIVITIES - IDRs AND VR
Fitch will review the IDRs and VR of BPA once there is more clarity on the future of the bank. The IDR will be assigned 'D' in the event of the liquidation, winding-up or cessation of the business, which Fitch views as a potential scenario. The VR may be re-rated if and when Fitch believes that the bank has regained viability.

KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR
The bank's Support Rating (SR) of '5' and Support Rating Floor (SRF) of 'No Floor' reflect Fitch's view that the probability of BPA receiving support in case of need is low.

Although Fitch does not publish a rating for Andorra, the banking system's large size relative to the Andorran economy means that while the authorities' propensity to provide support may be high, it cannot be relied upon given limited resources at their disposal.

RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR
The SR and SRF are sensitive to changes in assumptions around the propensity or ability of Andorran authorities to provide timely support to BPA. This might arise if there is a significant increase in resources available at authorities' disposal or if there is a change in ownership.

Fitch has taken the following rating actions on BPA:

Long-term IDR: downgraded to 'RD' from 'B+'; removed from Rating Watch Negative
Short-term IDR: downgraded to 'RD' from 'B'
VR: downgraded to 'f' from 'b+'; removed from Rating Watch Negative
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'