OREANDA-NEWS. October 07, 2015. Fitch Ratings has affirmed Peru's Banco de la Nacion's (BN) foreign currency long-term Issuer Default Rating (IDR) at 'BBB+', local currency long-term IDR at 'A-', foreign currency short-term IDR at 'F2', Support Rating Floor (SRF) at 'BBB+' and Viability Rating (VR) at 'bbb-'. The Rating Outlook is Stable. A full list of rating actions is at the end of this rating action commentary.

The bank's IDRs reflect the potential support from Banco de la Nacion's shareholder, the Republic of Peru ('BBB+/A-'/Outlook Stable). Banco de la Nacion is an autonomous government agency and in Fitch's opinion, forms an integral part of the government's operations.

It performs basic government functions (collection of taxes, payment of social welfare funds and public sector payrolls), finances key government activities (e.g. defence procurement and infrastructure), and maintains the country's most extensive branch network through which it provides financial services in unserved remote areas. Therefore, support from the government should be forthcoming, if required. Banco de la Nacion's support rating and support rating floor, indicate the direct link between the entity's creditworthiness and that of its shareholder, the Republic of Peru.

The Stable Outlook on BN's IDRs is in line with the Outlook of the sovereign.

The bank's VR is constrained by its capital position, which despite strong earnings, is increasingly pressured by an increase in risk-weighted assets and a high rate of dividend payments. Positively, BN's VR also reflects the importance of its franchise despite a relatively limited market share. This importance stems from its extensive branch network in remote areas, where it is commonly the only formal financial services provider, and it's processing of public sector payments and tax collection. In addition, BN reports strong and stable earnings, maintains a high proportion of liquid assets, and preserves its loan quality indicators at levels that are considerably healthier than the Peruvian banking sector average.

As a fully state-owned financial institution, deeply integrated within the government, Banco de la Nacion's creditworthiness and ratings are directly linked to those of the Republic of Peru. Hence, its ratings should move in line with any potential change in Peru's sovereign ratings.

The bank's VR have limited upside due to its franchise and business model. However, its VR could be pressured by a decline in financial performance or change in risk appetite. In addition, a sustained decline in BN's tangible equity as a share of tangible assets to below 6% would pressure its VR.

Fitch has affirmed the following ratings:

Banco de la Nacion
--Foreign currency long-term IDR at 'BBB+'; Outlook Stable;
--Local currency long-term IDR at 'A-'; Outlook Stable;
--Foreign currency short-term IDR at 'F2';
--Local currency short-term IDR at 'F2';
--Support Rating at '2';
--Support Rating Floor at 'BBB+';
--Viability Rating at 'bbb-'.