Fitch Affirms Banco Nacional de Panama's IDR Following Peer Review; Outlook Stable

MONTERREY, Mexico & SAN SALVADOR, El Salvador--(BUSINESS WIRE)-- Fitch Ratings has affirmed the ratings for Banco Nacional de Panama's (Banconal) Long-Term Issuer Default Rating (IDR) at 'BBB' following a peer review of Panama's largest banks. The Rating Outlook is Stable. At the same time, the bank's Viability rating (VR) was affirmed at 'bbb-'. A full list of ratings follows at the end of this press release.

KEY RATING DRIVERS

IDRs, SUPPORT RATING AND SUPPORT RATING FLOOR

The ratings reflect the potential support the bank would receive from its owner, the Republic of Panama. Banconal's IDRs are aligned with those of the sovereign while the Support Rating Floor (SRF) and Support Rating (SR) reflect a state guarantee for its debt. In Fitch's view, the Panamanian government has a vested interest in providing timely support to Banconal as it is considered a policy bank that plays an important role as the government's financial agent.

The Stable Outlook reflects Fitch's expectation that the issuer's Long-Term IDR will remain unchanged over the rating horizon.

VR

The bank's VR is highly influenced by its company profile and privileged position with government-related entities. As the government's financial agent, public entities are required to maintain deposit accounts at the bank, providing a large base of low-cost funding. Therefore Banconal maintains an ample liquidity cushion with bank deposits and securities representing 63% of total assets as of June 2016. Profitability metrics are in line with its conservative asset allocation.

As of June 2016, the bank's operating profits-to-risk weighted assets ratio stood close to 2.1%, driven by adequate operating efficiency with a cost-to-income ratio of 52.2% and low impairment charges representing 3.2% of the bank's pre-impairment operating profit. Still, revenue diversification remains limited and the net interest margin was low.

Banconal's loan quality was good with loans 90-days past-due decreasing to 0.4% as of June 2016. However, concentration is high as the top 20 borrower groups accounted for 24% of the total portfolio and 1.1x its equity. The securities portfolio (28% of earnings assets) consisted of investment-grade issuers (95.6%), of which 48% was to the Panamanian public sector. As of June 2016, 93% of loans and advances to banks (38% of earnings assets) were allocated to global financial institutions.

As of June 2016, loans-to-deposits stood at 36.6%, significantly below its international peers.

Government-related deposits accounted for more than 82.5% of Banconal's total funding. While deposit concentration will remain high given the bank's profile, these deposits have provided a stable source of funding. Cash, bank deposits and available for sale securities accounted for 72% of deposits, providing an ample liquidity cushion.

Banconal's capital position is adequate and has proven resilient to stricter capital regulation valid as of July 2016. As of September 2016, the bank's regulatory capital ratio stood at 14.5%, underpinned by the deferral of a portion of dividend payments from first-half 2016 to year-end 2016. In Fitch's view, capital levels should support the bank's growth plan, though this remains subject to the government's dividend policy.

RATING SENSITIVITIES

IDRs, SUPPORT RATING AND SUPPORT RATING FLOOR

The bank's IDRs, Support Rating and Support Rating Floor are sensitive to a change in the sovereign rating.

VR

Sustained improvements in its profitability and further diversification into business activities that complement its privileged position with government-related entities would be positive for its VR. Potential VR downgrades could be driven by declining profitability levels affecting a sustainable internal capital generation rate.

Fitch has affirmed Banconal's ratings as follows:

International Ratings

--Long-Term IDR at 'BBB'; Outlook Stable;

--Short-Term IDR at 'F2';

--VR at 'bbb-';

--SRF at 'BBB';

--SR at '2';

Summary of Financial Statement Adjustments: Pre-paid expenses were reclassified as other intangibles and deducted from Fitch Core Capital. Impaired Loans were adjusted to reflect only loans that are overdue by 90 days or more to be consistent with Fitch's criteria and global industry practices.

Additional information is available on www.fitchratings.com.

Applicable Criteria

Global Bank Rating Criteria (pub. 15 Jul 2016)https://www.fitchratings.com/site/re/884135

Additional Disclosures

Dodd-Frank Rating Information Disclosure Formhttps://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1013719

Solicitation Statushttps://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1013719

Endorsement Policyhttps://www.fitchratings.com/regulatory

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Fitch Ratings
Primary Analyst:
Ricardo Aguilar, +52 81 8399-9124
Associate Director
Fitch Mexico, SA de CV
Prol. Alfonso Reyes 2612, Monterrey, N.L. Mexico
or
Secondary Analyst:
Jose Berrios, +503 2516-6612
Analyst
or
Committee Chairperson:
Theresa Paiz-Fredel, +1-212-907-0534
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
New York
[email protected]

Source: Fitch Ratings

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