Fitch Affirms Banco Occidental de Descuento's IDR at 'CCC'

NEW YORK--(BUSINESS WIRE)-- Following a peer review, Fitch Ratings has today affirmed Banco Occidental de Descuento, Banco Universal C.A.'s (BOD) 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 BOD's ratings. Like all Venezuelan banks, the sovereign's creditworthiness constrains BOD'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).

BOD'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.

Despite above-average asset growth, capitalization ratios have been relatively stable since 2013 and are now more in line with those of domestic peers (large private-sector commercial banks in Venezuela). Steady profitability and full amortization of goodwill in 2015 benefited the bank's capital metrics. Profitability is now more in line with domestic peers as the fiscal impact of changes to tax regulation has been lower and loan growth has been greater.

Higher margins and rapid nominal loan growth more than compensated for the heavy burden of inflation on expenses and increased credit costs during the first three quarters of 2015. As is the case with other Venezuelan banks, Fitch expects operating, credit and tax expenses to pressure profitability over the medium term.

BOD has the weakest loan quality indicators among domestic peers. A growing proportion of retail and compulsory loans also increases the vulnerability of the bank's loan quality indicators to the current economic crisis.

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.

Upside potential to the bank's ratings in the near term is limited in light of the current economic crisis.

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 BOD'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 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 BOD'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 'BBB-(ven)';

--Short-term national scale rating at 'F3(ven)'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Global Bank Rating Criteria (pub. 20 Mar 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863501

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=996785

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=996785

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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/20151215006880/en/

Fitch Ratings
Primary Analyst
Theresa Paiz Fredel, +1-212-908-0534
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Larisa Arteaga, +1-809-563-2481 (Secondary Analyst - BOD, BNC)
Director
or
Committee Chairperson
Rene Medrano, +503 2516 6610
Senior Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
[email protected]

Source: Fitch Ratings

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