Fitch Downgrades Bantrab's IDRs to 'B+'; Negative Watch Maintained

MONTERREY, Mexico & SAN SALVADOR, El Salvador--(BUSINESS WIRE)-- Fitch Ratings has downgraded Banco de los Trabajadores' (Bantrab) Long-Term Issuer Default Ratings (IDRs) to 'B+' from 'BB-'. In addition, the long-term National scale ratings of Bantrab, and Financiera de los Trabajadores (Fintrab) and the National scale Insurer Financial Strength (IFS) of Aseguradora de los Trabajadores have also been downgraded, to 'BBB(gtm)' from 'A(gtm)'. The Rating Watch Negative is maintained for the first two entities, while Aseguradora de los Trabajadores was placed on Rating Watch Negative. See the full list of rating actions at the end of this release.

Bantrab's IDRs, Viability Rating (VR) and National ratings have all been downgraded as the capacity for continued timely payment on the bank's financial liabilities has materially declined. Nevertheless, Fitch expects the November 2016 coupon to be paid on time, since, according to Bantrab management, these funds have already been transferred to the trustee. Recent events related to the arrest of various executives and members of the Board of Directors by the Guatemalan authorities on charges of fraud, illicit associations and embezzlement to the detriment of the bank's shareholders highlight the weaknesses in corporate governance and risk controls and contributed to the loss of various correspondent bank relationships.

The Rating Watch Negative is maintained, as Fitch believes that Bantrab's correspondent bank relationships could continue to suffer while deposit instability may increase, with a negative effect on its funding and liquidity profile as well as the bank's ability to make future payments to bondholders. Fitch will continue to monitor available information and the evolution of Bantrab's relationship with correspondent banks as well as its operational capacity to service future debt payments. The next coupon payment is scheduled for May 2017.

In line with Bantrab's rating actions, Bantrab Senior Trust's (BST) IDR has been downgraded to 'B+' from 'BB-' and the Rating Watch Negative maintained. Fitch will monitor the evolution of Bantrab's relationship with correspondent banks and its operational capacity to make future debt payments.

The National scale ratings of Bantrab, Fintrab and Aseguradora de los Trabajadores were downgraded in line with the parent, since these are driven by its support.

KEY RATING DRIVERS

IDRS, VR and NATIONAL RATINGS - Bantrab

Bantrab's ratings are limited by corporate governance weakness and a funding profile that is highly sensitive to market sentiment.

The bank is characterized by its high risk appetite, mainly reflected by weak risk controls and its focus on segments of middle and low income customers, particularly in the Guatemalan public sector. The bank registers good loan quality indicators given the debt collection via automatic payroll deductions, and its capital position compares favorably with the industry average and its main competitors. Bantrab's profitability has dropped slightly but remains at a good level. This is based on a high net interest margin, acceptable operational efficiency and moderate loan loss provisions.

SUPPORT RATING AND SUPPORT RATING FLOOR - Bantrab

Bantrab's SR and SRF of '5' and 'NF', respectively, indicate that, although possible, external support cannot be relied upon given the currently low state ownership and limited systemic importance.

IDR - Bantrab Senior Trust

BST's seven-year U.S.-dollar loan participation notes' rating is in line with Bantrab's VR reflecting that the senior unsecured obligations rank equally with the bank's unsecured and unsubordinated obligations.

Fitch has assigned a Recovery Rating of 'RR4' as we expect an average recovery in the event of a default.

National Scale Ratings - Fintrab and Aseguradora de los Trabajadores

In Fitch's opinion, Fintrab and Aseguradora de los Trabajadores' National ratings are underpinned by institutional support they would receive from their shareholder, Bantrab. Fitch's opinion of the support is based on the high integration of the subsidiaries with the parent and the significant reputational risk that a default of one of them would pose to Bantrab. As a result, their National scale ratings are aligned with Bantrab's credit profile.

RATING SENSITIVITIES

IDRS, VR, RECOVERY RATING, NATIONAL RATINGS, SR AND SRF

The ratings could be downgraded if the bank's ability to service its debt is further weakened due to the loss of its correspondent bank relationship, a material decline in liquidity or a deterioration of its funding profile. Conversely, the Rating Watch Negative could be removed if actions are taken to ensure the timely payment of future debt obligations.

IDR - BST

Changes in the notes' rating are contingent with rating actions for Bantrab.

National Ratings - Fintrab y Aseguradora de los Trabajadores

The National ratings of Bantrab's subsidiaries would mirror changes in the National scale ratings of their parent.

The rating actions are as follows:

Banco de los Trabajadores:

--Long-term IDR downgraded to 'B+' from 'BB-', Rating Watch Negative maintained;

--Short-term IDR affirmed at 'B', Rating Watch Negative maintained;

--Local Currency Long-term IDR downgraded to 'B+' from 'BB-', Rating Watch Negative maintained;

--Local currency Short-term IDR affirmed at 'B', Rating Watch Negative maintained;

--National Long-term Rating downgraded to 'BBB(gtm)' from 'A(gtm)', Rating Watch Negative maintained;

--National Short-term Rating downgraded to 'F3(gtm)' from 'F1(gtm)', Rating Watch maintained;

--Viability Rating downgraded to 'b+' from 'bb-', Rating Watch Negative maintained;

--Support Rating affirmed at '5';

--Support Rating Floor affirmed at 'NF'.

Financiera de los Trabajadores, S.A.

--Long-term national rating downgraded to 'BBB(gtm)' from 'A(gtm)'; Rating Watch Negative maintained;

--Short-term national rating downgraded to 'F3(gtm)' from 'F1(gtm)', Rating Watch Negative maintained.

Bantrab Senior Trust

--Long-term foreign currency loan participation notes downgraded to 'B+' from 'BB-', Rating Watch Negative maintained.

--Recovery Rating assigned: 'RR4'.

Fitch has taken the following rating actions for Aseguradora de los Trabajadores:

--National scale IFS Rating downgraded to 'BBB(gtm)' from 'A(gtm)', Placed on Rating Watch Negative.

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

Global Non-Bank Financial Institutions Rating Criteria (pub. 15 Jul 2016)

https://www.fitchratings.com/site/re/884128

Metodología de Calificaciones Nacionales (pub. 13 Dec 2013)

https://www.fitchratings.com/site/re/727099

Metodología de Calificación de Seguros (pub. 19 Oct 2016)

https://www.fitchratings.com/site/re/889422

National Scale Ratings Criteria (pub. 30 Oct 2013)

https://www.fitchratings.com/site/re/720082

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1014563

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1014563

Endorsement Policy

https://www.fitchratings.com/regulatory

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Fitch Ratings
Banco de los Trabajadores and Bantrab Senior Trust
Primary Analyst
Ricardo Aguilar
Associate Director
+52 81 8399 9124
Av. Prol. Alfonso Reyes #2612,
Piso 8 Edificio Connexity,
Col. Del Paseo Residencial,
Monterrey, Nuevo Leon 64920
or
Secondary Analyst
Alvaro Castro
Associate Director
+503 2516 6615
or
Financiera de los Trabajadores
Primary Analyst
Alvaro Castro
Associate Director
Fitch Centro America, S.A.
79 Avenida Sur y Calle Cuscatlan,
San Salvador, El Salvador
or
Secondary Analyst
Ricardo Aguilar
Associate Director
+52 81 8399 9124
or
Aseguradora de los Trabajadores
Primary Analyst
Riccardo Caruso
Associate Director
(503) 2516-6621
Fitch Centro America, S.A.
79 Avenida Sur y Calle Cuscatlan,
San Salvador, El Salvador
or
Secondary Analyst
Maria Arango
Associate Director
+503 2516-6620
or
Committee Chairperson
Theresa Paiz-Fredel
Senior Director
+1 212-908-0534
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
[email protected]

Source: Fitch Ratings

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