NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has upgraded Banco de Desarrollo Rural's (Banrural) long-term Issuer Default Rating (IDR) to 'BB+' from 'BB'. The Rating Outlook is Stable. A full list of rating actions follows at the end of this press release.
Fitch upgraded Banrural's IDRs and Viability Rating (VR) due to the bank's consistent and above average performance even during times of economic slowdown in its home market. Banrural's Stable Outlook reflects that Fitch does not anticipate substantial changes in the bank's risk profile in the foreseeable future. Banrural's upside potential is deemed limited unless it achieves structural changes to gradually diversify its revenues and improve efficiency. On the other hand, a significant reduction of its Fitch Core Capital Ratio (below 11%) and or a period of sustained low earnings (Operating ROAA below 1%) would trigger a negative rating action.
Banrural's IDR and VR reflect its sound local franchise, high profitability, strong capital metrics, and ample depository base. Banrural's ratings also consider its limited revenue diversification and sensitivity to economic downturns, given its main target markets (consumption, micro and small enterprises).
The bank has exhibited a consistently high financial profitability over the last six years, which compares positively to its main local and international peers, despite its weak efficiency derived from its business model. The bank's financial profitability is boosted by an ample net interest margin, which balances the relatively low contribution from non-interest income, and the increasing operating expenses, given the growth in branches and points of services. Fitch foresees that Banrural will maintain a strong profitability in the medium term that is above the average of its main national and international peers.
Banrural has shown a positive trend in its capital ratios over the last five years, stabilizing in the last two fiscal years. Fitch Core Capital to risk weighted assets stood at a high 15.1% at June 2012, well-above the average of the Guatemalan banking system. The bank's capitalization may stabilize in around 16% for the short term, which Fitch considers reasonable in light of the risks to which the entity is exposed. Banrural's funding benefits from an ample depository base, which is growing consistently at double digit levels. The high weight of low cost saving and current account deposits (68.1% on total deposits) favors the bank's funding costs.
The bank's credit quality is good. Banrural's delinquency metrics have been below 1% over the last seven years, at the same time that the reserve coverage for non-performing and gross loans have tended to be above 200% and 2%, respectively, over the same period. On the overall, loan portfolio concentration in the largest economic debtors is low and in a decreasing trend, as is the entity's foreign currency exposure and the non-domiciliated loans. Although restructured loans remain relatively high (June 2012: 6.4% of gross loans), they are in a declining trend since its peak in FY2010 (8%) and respond to the bank's business model. The bank's high financial profitability provides a good cushion for provision expenses, in case as may be necessary.
Established in Guatemala in 1998, Banrural focus its services in promoting economic and social development in rural areas of the country. The bank is mainly oriented to finance consumption, as well as micro, small and medium companies, with a smaller share in corporate loans. Currently, Banrural is the third largest Guatemalan bank in terms of assets and the second in deposits, with a market share of 19.7% and 21.1%, respectively.
Fitch has taken the following rating actions on Banrural:
--Long-term foreign currency IDR upgraded to 'BB+' from 'BB'; Outlook Stable;
--Short-term foreign currency IDR affirmed at 'B';
--Long-term local currency IDR upgraded to 'BB+' from 'BB'; Outlook Stable;
--Short-term local currency IDR affirmed at 'B';
--Viability rating upgraded to 'bb+' from 'bb';
--Support affirmed at '3';
--Support Rating Floor affirmed at 'BB-';
--National long -term rating upgraded to 'AA+(gtm)' from 'AA(gtm)'; Outlook Stable;
--National scale short-term rating affirmed at 'F1+(gtm)'.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);
--'National Rating Criteria' (Jan. 19, 2011);
--'Central American Banks Withstand Financial Contagion Well-Positioned for Growth' (July 9, 2012);
--'Improved Efficiency Could Boost Credit Profiles of Central American Banks' (March 7, 2012);
--'Guatemala' (July 31, 2012).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
National Ratings Criteria
Central American Banks Withstand Financial Contagion Well-Positioned for Growth
Franklin Santarelli, +1 212-908-0739
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Edgar Cartagena, +503 2516 6613
Edificio Plaza Cristal, Tercer Nivel
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Elizabeth Fogerty, +1 212-908-0526
Source: Fitch Ratings