Fitch Affirms Bladex's IDR at 'BBB+'; Outlook Stable
KEY RATING DRIVERS
IDRS, NATIONAL RATINGS AND SENIOR DEBT
The bank's IDRs, National and senior debt ratings reflect Bladex' robust asset quality as well as its stable funding and adequate liquidity. Additionally, the bank's ratings reflect its expertise in Latin American trade finance, good capitalization, and moderate profitability. Fitch's view of Bladex's ratings is tempered by the bank's narrow albeit stable margins and its loan and funding concentration.
Bladex is rated above the country's Sovereign rating as it has a geographically diversified balance sheet. The bank has proven it can weather a default in one of its key host countries - and a major liquidity crunch - and would likely be treated as a preferred creditor in most countries where it operates (limiting transfer and convertibility risks). By the same token, it is unlikely that it would have any restrictions on its debt service.
Given its customer base (major regional banks and corporations), the bank is structurally concentrated on its loan portfolio. By the same token, funding, mainly from central/state-owned and commercial banks, is also concentrated but fairly stable. Such concentration could limit future upgrades of the bank's ratings.
Asset quality remained sound through the second quarter of 2015 (2Q15) as the bank's nonperforming loans (NPLs) stood at 0.3% of gross loans. Loan loss reserves (LLR) stood at 1.2% of gross loans at the same date (reserve coverage was 4.4x). Moreover, Bladex has set aside additional LLR for off-balance-sheet credit risk. The total LLR coverage of gross loans and off-balance-sheet credit risk stood at 1.23% at 2Q15. Fitch expects that NPLs will continue to grow modestly as the bank ventures into middle-market companies lending but they should stabilize at a very moderate level. In the medium term, Fitch's base case scenario considers an NPL ratio not higher than 1% of gross loans.
In addition to having about 12% of its assets in cash and bank deposits (plus about 3% in highly liquid securities), Bladex has a very liquid loan portfolio that rolls over at least twice a year. This proved a key safeguard for the bank as it successfully navigated the liquidity stress of 2008-2009. Since then, Bladex improved its funding structure, relying less on short-term borrowings and reducing its asset/liability gaps and funding costs. Bladex wholesale funded nature is offset by the diversification of its funding sources by country and currency, the stability of its banking relationship, and its strong and long-standing business relationships with regional commercial and government-owned banks (including Central Banks).
Bladex has developed a unique expertise and franchise since 1979 and has become the top regional foreign trade bank. This expertise is a key competitive factor in a region where trade is rapidly growing. As part of its diversification strategy, the bank is leveraging its expertise and franchise to generate fees from structuring and distributing syndicated loans.
Fitch Core Capital and other capital ratios (tangible equity to assets) are sound by any standard and likely to remain in the mid-teens, a level considered adequate given Bladex's low-risk business, asset quality, reserves, and risk management policies.
The bank's narrow margins and the modest performance of trading and investing activities limit its profitability which was nevertheless bolstered by fees and commissions. In turn, loan loss provisions have increased in line with the bank's expansion into middle-market companies. For their part, operating expenses have stabilized and decreased in relative terms. Accordingly, efficiency and profitability improved; ROAE stood at about 11% at June 2015 and ROAA was about 1.3%.
Bladex's key markets face new challenges and slower growth but diversification and adroit risk management fostered healthy loan growth and sound asset quality. Bladex should maintain sound performance through moderate asset growth, resilient margins, contained operating costs, and moderate provisions should contribute to preserve current profitability levels (ROAA of around 1%).
The Stable Outlook reflects Fitch's expectation that Bladex's financial profile and performance will remain in line with recent trends.
SUPPORT RATING AND SUPPORT RATING FLOOR
The bank's Support Rating and Support Rating Floor reflect Fitch's view that external support for the bank, though possible, cannot be relied upon.
RATING SENSITIVITIES
VR, IDRS, NATIONAL RATINGS AND SENIOR DEBT
[Assuming the maintenance of a supportive operating environment, Bladex' ratings could benefit from more stable revenues and a material reduction in credit and funding concentrations as this could result in lower risk and improved, more consistent profitability.
Significantly weaker margins or important asset quality deterioration that erodes profitability and weakens the capital/reserves cushion beyond Fitch's base case scenarios (e.g. NPLs consistently above 1% and/ or Fitch Core Capital below 12%) could put negative pressure on Bladex's ratings.
SUPPORT RATING AND SUPPORT RATING FLOOR
Bladex' SR and SRF would change if Fitch changes its assessment of the government's or its shareholders' ability and willingness to support the bank.
Fitch has affirmed the following ratings:
Bladex
--Long-term foreign currency IDR at 'BBB+'; Outlook Stable;
--Short-term foreign currency IDR at 'F2';
--Viability rating: at 'bbb+';
--Support Rating at '5';
--Support Rating Floor at 'NF';
--Senior unsecured notes at 'BBB+';
--Senior unsecured certificates at 'AAA(mex)';
--Senior Unsecured short term certificates at 'F1+(mex).
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