Fitch Affirms Scotiabank Peru S.A. at 'A-'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed Scotiabank Peru S.A.A.'s (SBP) Viability Rating (VR) at 'bbb+' and Foreign and Local currency Issuer Default Ratings (IDRs) at 'A-' and 'A+', respectively. A full list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

IDR and Support Rating

SBP is considered a strategic subsidiary of the Bank of Nova Scotia (BNS; rated 'AA-'/Outlook Stable by Fitch). Hence, in Fitch's opinion, there is a high probability that SBP would receive support from its parent, should it be required, provided that SBP does not suffer from a systemic risk event. BNS's potential support underpins SBP's IDRs and support rating.

VR

SBP's VR is driven by its sound capital, ample margin and consistent performance, adequate asset quality and reserves, strengthened franchise, and improved funding structure and cost, amid a less benign operating environment projected during 2015 for the Peruvian economy.

SBP's financial performance is robust, resilient and consistent. During 2014, performance was driven by sound loan growth and ample margins, reflecting the bank's low funding cost and the high and strong credit expansion into higher margin segments. A clear focus on cost control, allows SBP to record remarkable efficiency ratios compared to the local market average and regional peers.

SPB's conservative risk culture, solid portfolio growth and successful collection efforts, helped SBP manage some deterioration in the small-and-medium enterprise segment. Fitch expects the bank to maintain adequate asset quality ratios, although they would likely be a bit worse than the industry average, reflecting its orientation toward retail and microcredit lending.

Consistent performance, sound internal capital generation and from the outset, significant fresh capital contributions from its parent, resulted in a solid capital base that compares well to that of its local and regional peers. Continued growth should slightly erode capital ratios, but they are likely to remain strong and consistent with SBP's ratings.

BNS created a sound franchise from the merger of two local banks and the subsequent acquisition of a consumer and microfinance company. After a lengthy merger process, the bank consolidated its position as a universal bank with a stronghold on the corporate segment and growing retail operations. On December 2014, SBP announced its decision to acquire Citigroup's retail and commercial banking operations in Peru, which represented an increase of about 3% of SBP's total assets.

SBP's funding mix has improved in favor of lower cost demand deposits, thus underpinning funding costs and margins. In addition, the increasing importance of capital markets funding contributes toward improving asset-liability gaps.

SUBORDINATED DEBT

SBP's subordinated bonds are plain vanilla and lack the features that would earn them equity credit following Fitch's criteria. In Fitch's opinion, their probability of non-performance is equivalent to that of SBP's senior bonds but, they would entail a higher loss in case of default due to their subordinated nature. Hence, they would normally be rated only one notch below the bank's local currency IDR (LC IDR) but, the bonds' rating is constrained by the country ceiling and therefore the bonds are rated at that level, two notches below SBP's LC IDR.

RATING SENSITIVITIES

IDR and Support Rating

Sovereign Upgrade: SBP's foreign currency IDR would be upgraded should Peru's sovereign rating and country ceiling be upgraded. Downward risk for the bank's IDRs is limited given its parent support but the IDRs could also change if Fitch's assessment of BNS's ability or willingness to support SBP changes.

VR

SBP's VR could be upgraded if the bank maintains good asset quality (90-days PDLs below 3.5%) and a solid performance (Operating ROA above 2%) amid a stable environment as evidenced by a higher sovereign rating. On the other hand, should asset quality deteriorate (90-day PDLs above 3.5%) or profitability sharply decline (operating ROAA below 2%), its VR would be pressured downwards.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

The subordinated debt ratings would move in line with SBP's LC IDR.

Fitch affirms SBP's ratings as follows:

--Long-term foreign currency IDR at 'A-'; Outlook Stable;

--Short-term foreign currency IDR at 'F1';

--Long-term local currency IDR at 'A+'; Outlook Stable;

--Short-term local currency IDR at 'F1';

--Support rating at '1';

--Subordinated debt at 'A-';

--Viability rating at 'bbb+'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);

--'Assessing and Rating Bank Subordinated and Hybrid Securities' (Jan. 31, 2014).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria - Effective from 31 January 2014 to 20 March 2015

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

Assessing and Rating Bank Subordinated and Hybrid Securities Criteria - Effective from 31 January 2014 to 20 March 2015

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732137

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985144

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150521006211/en/

Fitch Ratings
Primary Analyst
Diego Alcazar
Director
+1-212-908-0396
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Larisa Arteaga
Director
+1-809-563-2481
or
Committee Chairperson
Alejandro Garcia
Senior Director
+52-81-8399-9146
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: [email protected]

Source: Fitch Ratings

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