OREANDA-NEWS. Fitch Ratings has affirmed the Chilean Banco de Credito e Inversiones's (BCI) Viability Rating (VR) and foreign and local currency long-term Issuer Default Ratings (IDRs) at 'a-' and 'A-', respectively, while the rating Outlook for the long-term IDRs and National rating was revised to Positive from Stable. The affirmation is part of Fitch's 'Large Chilean Banks Peer Review 2015'. A complete list of rating actions is provided at the end of this release.

The Outlook revisions were based on BCI's VR. Over the next 12-24 months Fitch will review the execution risks and impact of the acquisition of City National Bank in USA (CNB) on BCI's overall positive trend in financial metrics observed in the recent past. While the expected benefits in revenue and risk, diversification in the new market could allow a more robust balance sheet, in turn Fitch expects more restricted prospects for the Chilean economy that could put pressure on Chilean banks' profitability and credit quality.


BCI's IDRs are supported by its VR and reflect its strong domestic franchise, sound balance sheet and liquidity management, improved credit quality and capital base, more diversified funding sources, and its stable profitability through the cycle.

The affirmation and Outlook revision are also based on Fitch's opinion that the recently closed acquisition of CNB will be strategically positive for the BCI franchise and that it will not weaken the bank's overall financial strength. The acquisition was completed in late October and was paid for in cash of USD947 million, at a 1.14x multiple over CNB's book value. The expected impact on capital ratios will not be material as BCI's consolidated pro forma Fitch Core Capital (FCC) ratio deducted goodwill and intangibles of nearly 9.7% of Fitch's adjusted risk weighted assets (RWA) prior to the transaction, in line with its local large private peers (10.0%) and regional peers (10.6% as June 30, 2015). Fitch expects this trend will to be maintained in the medium term and BCI's FCC will continue to remain at least on target at 9% of its consolidated RWA, after the approved USD450 million capital injection.

BCI has strengthened its credit risk governance framework, defining stricter risk appetite tolerance standards, and implemented best practices throughout the whole rating process and monitoring of its commercial loans. In Fitch's opinion, these advances will allow BCI to reduce its global portfolio risk, relieving the impact large borrowers' impaired loans have had on operating income.

Credit quality metrics remain sound. This is reflected in moderate loan impairment charges to pre-impairment and operating profit ratio (28.5% in second quarter 2015 [2Q15]), stable and lower credit cost ratio (1.1% over average gross loans) and non-performing loans (NPLs) below 2%, mainly due to corporate loans regulatory charge-offs. Total loan loss reserves including additional voluntary reserves, accounting for CLP64.7 billion, cover the NPLs by 1.3x as of 2Q15. In Fitch's view, the improving trend will moderate due to defiance operating environment and modest loan growth prospects for 2016 in the domestic market.

BCI's capital base has significantly improved in the last 5 years given its sound internal capital generation (14% average since 2010), when the bank changed its dividend policy and decided to retain 70% of its own profits. This has benefited BCI's capital adequacy, and its FCC ratio has improved more than 150bps since 2009. This allowed the bank to close the gap with its largest local private peers (median FCC ratio at 10% of RWA). Although BCI's FCC ratio still lags those of its international peers rated (median of 14.5% for banks with VR level of 'a' at Dec. 31, 2014), Fitch considers that BCI's Tangible Common Equity ratio as sound, aligned with its rating (median of 7.9% at Dec. 31, 2014), and its internal capital generation to also be adequate for its current rating and expects that its sound and stable profitability will allow it to maintain them..


BCI's Support Rating and Support Rating Floor are based on Fitch's view that BCI is a domestic systemically important financial institution (D-SIFI). Consequently, BCI is a bank for which there is an extremely high probability of external support from the Chilean sovereign. The potential provider of support, Chile, is highly rated (Fitch foreign currency long-term IDR of 'A+'; Stable Outlook) and, in Fitch's opinion, has a very high propensity to support the bank.


BCI's senior unsecured bonds are rated at the same level as the bank's and National long-term rating, considering the absence of credit enhancement or subordination feature.

Fitch rates BCI's National scale subordinated debt two notches below its National long-term issuer rating. The two-notch difference considers the loss severity due to its subordinated nature (after default).



The Rating Outlook for the long-term IDRs and National rating is Positive and is based on BCI's VR. To resolve the assigned Outlook Fitch will evaluate, over the next 12-24 months, the impact and inherent execution risks of the CNB acquisition on BCI's overall positive trend in financial metrics observed in recent past.

An upgrade could take place with continued and balanced growth and strength of its franchise, coupled with a rebuilt FCC ratio of 10% of its RWA, while maintaining its sound overall performance, low risk profile and ample liquidity.

In addition, a downward pressure in BCI' VR could result from a deterioration of BCI's capital adequacy ratios, with FCC ratio falling and remaining below 9.0%. BCI's VR could also be under pressure if operating return on assets falls and remains below 1.5%, or if any unexpected event related to CNB's acquisition of CNB worsens BCI's profitability, credit risk ratios, liquidity, or capital base.


BCI's SR or SRF would only be affected by a downgrade of Chile's sovereign IDRs, which is considered unlikely at the present time.


The senior and subordinated debt would generally move together with each bank's National long-term rating, with the subordinated debt typically remaining two notches below the bank's National long-term rating.

Fitch has affirmed BCI's rating as follows:

--Foreign and local currency long-term IDRs at 'A-'; Outlook revised to Positive from Stable;
--Foreign and local currency short-term IDRs at 'F1';
--Viability Rating at 'a-';
--Support Rating at '1';
--Support Rating Floor at 'A-';
--Long-term foreign currency senior unsecured at 'A-';
--Long-term national rating at 'AA+(cl)'; Outlook revised to Positive from Stable;
--Short-term national rating at 'N1+(cl)';
--National long-term rating senior unsecured bonds at 'AA+(cl)';
--National long-term rating subordinated bonds at 'AA-'.
--National equity rating at 'Primera Clase Nivel 1'.