Fitch Affirms Banco de Costa Rica's IDR at 'BB+'; Outlook Negative
OREANDA-NEWS. Fitch Ratings has affirmed Banco de Costa Rica's (BCR) Issuer Default Rating (IDR) at 'BB+'. Fitch also affirms BCR's Viability Rating (VR) at 'bb+'. The Rating Outlook is Negative. A full list of ratings follows at the end of this press release.
KEY RATING DRIVERS - IDRs, SENIOR DEBT, AND NATIONAL RATINGS
The bank's IDRs, senior debt ratings, and national ratings are driven by the potential support of the Costa Rican government ('BB+'/Outlook Negative), as stated in the National Banking System Law. According to this law, all state-owned banks have the guarantee and full collaboration of the state. The explicit guarantee allows BCR's long-term IDR, senior debt ratings and Outlooks to be aligned with the sovereign rating.
KEY RATING DRIVERS - VR
The bank's VR reflects its strong franchise, ample and diversified deposits, good capital position, manageable asset quality and modest profitability. Also, the operating environment has a big influence on BCR's performance and VR. Further deterioration of the operating environment may result in pressures on the financial profiles of Costa Rican banks.
BCR is one of the main competitors in the Costa Rican banking system due to its strong franchise. The bank has a broad base of deposits thanks to the sovereign explicit guarantee for the bank's liabilities, high market share and extensive branch network. Through its subsidiaries, the bank is able to further diversify non-interest income and to extend its business outside of Costa Rica.
BCR's Fitch Core Capital ratio is in line with its international peers' average, close to 14%. However, BCR's internal capital generation is usually lower than its loan portfolio's growth, which together with declining operating profits relative to gross loans ratio; the bank is reducing its ability to absorb losses in the event of stress.
The loan portfolio's credit profile is accordance the bank's state owned nature and important market position. The portfolio is high diversified, and the exposure to U.S. dollar-denominated loans is moderate. However, the level of non-performing loans continued above the industry's average.
BCR benefits from diversified and stable base deposits. Funding is complemented by subordinated debt and a longer-term international issuance. In Fitch's view, this funding improved the bank's assets and liabilities management and contributed to reducing mismatches in foreign currency. At the same time, liquidity coverage is adequate, and the investments portfolio is actively managed to maintain adequate liquidity support for public deposits and to comply with regulatory capital requirements.
Consistent with BCR's state-owned nature, profitability is modest and below the Costa Rican banking system average. Operating profits are constrained by a narrow margin, high operating expenses and narrow income diversification. Profitability prospects are sensitive to changes in market and economic conditions.
KEY RATING DRIVERS -, SUPPORT RATING, SUPPORT RATING FLOOR
BCR's support rating (SR) of '3' reflects Fitch's opinion that there is a moderate probability of support from the state. In Fitch's opinion, the bank has a clear policy roll and the explicit support of the state. Support probability is limited by the sovereign rating. The bank's Support Rating Floor (SRF) is equalized to the sovereign rating, given the explicit guarantee from the government towards the bank and its systemic importance.
RATING SENSITIVITIES - IDRs, VR, NATIONAL RATINGS, SUPPORT RATING, SUPPORT RATING FLOOR AND SENIOR DEBT
Changes in Costa Rica's sovereign rating may trigger similar changes in BCR's IDRs, VR, SR, SRF, and senior debt ratings. National ratings are less likely to be affected should Costa Rica's IDRs be downgraded.
Fitch has affirmed BCR's ratings as follows:
--Long-term foreign currency IDR at 'BB+'; Outlook Negative;
--Short-term foreign currency IDR at 'B';
--Long-term local currency IDR at 'BB+'; Outlook Negative;
--Short-term local currency IDR at 'B';
--Long-term senior unsecured bonds at 'BB+';
--Viability Rating at 'bb+';
--Support Rating at '3';
--Support Rating Floor at 'BB+';
--Long-term national rating at 'AA+(cri)'; Outlook Stable;
--Short-term national rating at 'F1+(cri)';
--Long-term senior unsecured bonds at 'AA+(cri)';
--Commercial paper at 'F1+(cri)'.