OREANDA-NEWS. Following a peer review, Fitch Ratings has today affirmed Banesco Banco Universal, C.A.'s (BBU) foreign and local currency Issuer Default Ratings (IDRs) at 'CCC'. No Rating Outlook is assigned at this rating level. See the full list of rating actions at the end of this release.

KEY RATING DRIVERS
IDRS, VR AND NATIONAL RATINGS
As with other emerging market commercial banks in highly speculative rating categories, the operating environment highly influences BBU's ratings. Like all Venezuelan banks, the sovereign's creditworthiness constrains BBU's ratings due to exposure to public sector (mostly sovereign) securities, as well as vulnerability to the government's policy choices and the country's economic performance. Venezuela's IDR is currently rated 'CCC' by Fitch. High inflation distorts the comparison of financial metrics with regional peers (Latin American commercial banks with a Viability Rating [VR] of 'b+' and below).

BBU's funding and liquidity also highly influences its credit profile. Given the bank's high level of liquid assets, the large negative mismatch between short-term assets and liabilities is manageable as long as domestic monetary market conditions remain liquid and any potential liberalization of capital controls is measured. Most liquid assets consist of cash and bank deposits (94% of total) and covered 27.5% of deposits and short-term funding as of Sept. 30, 2015. Fitch views a greater proportion of cash favorably, as public sector securities may be of limited liquidity in a stress scenario given the shallow domestic debt market.

Like other Venezuelan banks, BBU's capital ratios have come under pressure as asset growth has exceeded internal capital generation since early 2014. Despite this deterioration, capitalization ratios remained in line with domestic peers as of Sept. 30, 2015. However, the bank's tangible common equity/tangible assets ratio of 7.2% as of Sept. 30, 2015, continued to lag that of its regional peer median of 8.7%.

Higher margins and rapid nominal loan growth compensated for pressures from increased operating, credit and tax expenses in 2015. As such, BBU remained the most profitable large private sector bank in Venezuela with an annualized ROAA of 4.14%. As is the case with other Venezuelan banks, Fitch expects expenditure pressures to continue over the medium term.

BBU's impaired loans to gross loans ratio has remained below 1% since 2011, comparing favorably to domestic peers. Credit growth has been in line with that of the system since 2011. Reserve coverage of impaired and gross continued to improve in 2015. Nevertheless, at 2.8% of gross loans as of Sept. 30, 2015, Fitch views this level as tight, given the current economic crisis and historical nonperforming loan (NPL) levels following economic adjustment of previous crises. Although Fitch expects loan quality ratios to deteriorate in 2015 as the government takes measures to address macroeconomic imbalances, these ratios should remain in line with domestic peers.

RATING SENSITIVITIES
IDRS, VR AND NATIONAL RATINGS
A downgrade of the sovereign's IDRs would result in a similar action on the IDRs and VRs of these banks, which are currently capped at the sovereign. Additional government intervention that pressures financial performance could negatively affect the bank's IDRs, VR and National ratings. While not Fitch's base case due to capital controls and high domestic market liquidity, a persistent decline in deposits would pressure ratings.

KEY RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR
The banks' Support Rating (SR) of '5' and Support Rating Floor (SRF) of 'NF' reflect Fitch's expectation of no support. Despite BBU's systemic importance, support cannot be relied upon given Venezuela's highly speculative rating and lack of a consistent policy on bank support.

Venezuela's propensity or ability to provide timely support BBU is not likely to change given the sovereign's very low speculative-grade ratings. As such, the SR and SRF have no upgrade potential.

Fitch has affirmed BBU's ratings as follows:

--Long-term foreign and local currency IDRs at 'CCC';
--Short-term foreign and local currency ratings at 'C';
--Viability Rating at 'ccc';
--Support at '5';
--Support Floor at 'NF';
--Long-term national-scale rating at 'A+(ven)';
--Short-term national-scale rating 'F1+(ven)'.