Fitch Affirms Banesco's IDR at 'CCC'

NEW YORK--(BUSINESS WIRE)-- 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)'.

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=996771

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=996771

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/20151215006749/en/

Fitch Ratings
Primary Analyst
Theresa Paiz Fredel
Senior Director
+1-212-908-0534
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Mark Narron
Director
+1-212-612-7898
or
Committee Chairperson
Rene Medrano
Senior Director
+503 2516 6610
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
[email protected]

Source: Fitch Ratings

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