Fitch Affirms Banco Santander Chile's IDR at 'A+'; Outlook Stable

martes 11 de noviembre de 2014 12:21 GYT

(The following statement was released by the rating agency) NEW YORK, November 11 (Fitch) Fitch Ratings has affirmed Banco Santander Chile's (BSC) Viability Ratings (VRs) and long-term Issuer Default Ratings (IDR) at 'a+' and 'A+' respectively. The Rating Outlook on the long-term IDRs is Stable. A complete list of rating actions is provided at the end of this release. KEY RATING DRIVERS - VR, IDRs AND NATIONAL RATINGS BSC's IDRs and national long-term rating are driven by its VR of 'a+' and these do not factor in any extraordinary support from its parent, although it remains a strategically important subsidiary for Banco Santander. BSC's VR and IDRs reflect its market-leadership position and its strong franchise within Chile. The ratings also reflect the bank's healthy asset quality, sound core profitability, diversified funding and adequate capital position. BSC's asset quality ratios remain adequate and at Aug. 31, 2014 show some improvement as a result of the measures taken since 2012 due to the deterioration in credit risk indicators. Its nonperforming loans ratio fell to 2.90% (down from 3.17% at Dec. 31, 2012) and reserve coverage rose to 103.29%, levels deemed adequate considering the strong focus on retail lending and that a high proportion of the loan book had tangible collateral. Net charge-offs have also decreased since 2012 and, at 1.25% of gross loans, are at low levels. At the same date, the cost of credit (LLPs/total loans) fell to 1.60%, which Fitch considers reasonable in light of the bank's historical losses as shown by the lower charge off ratio. BSC has historically maintained a strong record of overall performance across the cycle with an average ROAA of around 2%. At Aug. 31, 2014, BSC's net income rose by 49.3% year over year benefitting from stronger loan growth, lower LLPs and a higher yield on the bank's inflation-indexed assets (Unidad de Fomento, or CLF). In addition, since 2012, the bank has taken measures to compensate for the pressure on its profitability mainly by increasing cross-selling, focusing in segments with higher risk-adjusted contribution, improving its funding mix and enhancing cost efficiency and productivity. As a result, BSC's ROA and ROE improved to 1.94% and 22.49%%, respectively at Aug. 31, 2014 (1.43% and 16.74% one year before), which compare well with that of its local and international peers. Fitch considers BSC's core earnings capacity to be sound and expects its profitability to remain healthy, although in the long term it will probably remain below its historical levels given the costs of heavier regulations and probably narrower margins due to competition. In addition, inflation levels are expected to be lower in 2015, and interest rates will likely rise, and this will put some pressure to BSC's net interest revenues, although it should remain healthy based on expected continued loan growth. BSC is self-funded and its liquidity benefits from a sizeable, historically stable, and well-diversified retail deposit base. With a focus on strengthening its funding profile and liquidity, BSC has been focusing for some time on growing its core deposit base and reducing its short term wholesale deposits (at Aug. 31, 2014 core deposits accounted for a high 74% of total deposits). In addition, it has maintained a large liquidity cushion and ample access to local and international capital markets. Fitch believes that BSC's capitalization levels are adequate for its current rating and compare well locally and by regional standards, especially considering the country's stable macroeconomic environment. At Aug. 31, 2014, BSC's Fitch core capital ratio was sound at 10.77%, which is over the median for LATAM peers (9.5% as Dec. 31, 2013) but below the median for banks with VR of 'a+' (11.4% as of Dec. 31, 2013). This is compensated for by a high equity / assets ratio (8.29% at Aug. 31, 2014) that reflects the tougher risk weighting rules in Chile and by a high internal capital generation capacity. KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR BSC's Support Rating and Support Rating Floor are based on Fitch's view that BSC is a domestic systemically important financial institution (D-SIFI). Consequently, BSC is a bank for which there is an extremely high probability of external support from the Chilean sovereign. The potential provider of support is very highly rated (foreign currency long-term IDR 'A+') and, in Fitch's opinion, has a very high propensity to support the bank. KEY RATING DRIVERS - SENIOR UNSECURED AND SUBORDINATED DEBT BSC's senior unsecured bonds are rated at the same level of the bank's and national long term rating, considering the absence of credit enhancement or subordination feature. Fitch rates BSC's subordinated debt in the national scale two notches below its national long-term issuer rating. The two notch difference considered the loss severity due to its subordinated nature (after default). RATING SENSITIVITIES - IDRs, VR, SUPPORT RATING, SUPPORT RATING FLOOR AND NATIONAL RATINGS The Outlook on BSC's long-term IDRs a Stable. Downward pressure for BSC's VR and IDRs could arise from sustained pressure on its profitability stemming from a rise in loan loss provisions or from consistently lower capitalization. More specifically, BSC's VR could be downgraded if its ROAA falls and consistently remains below 1.3%, its Fitch Core Capital to Risk Weighted Assets ratio falls and is maintained below 9%. There is limited upside potential in the near future for BSC's VR. RATING SENSITIVITIES -SUPPORT RATING AND SUPPORT RATING FLOOR BSC's SR or SRF could only be affected by a downgrade of Chile's sovereign IDRs, which is considered unlikely at the present time. Fitch has affirmed BSC's rating as follows: --Foreign and local currency long-term IDRs 'A+'; Outlook Stable; --Foreign and local currency short-term IDRs 'F1'; --Viability rating 'a+'; --Support rating '1'; --Support rating floor 'A-'; --Long-term national rating 'AAA(cl)'; Outlook Stable; --Short-term national rating 'N1+(cl)'; --Senior unsecured bonds 'A+' and national long-term rating 'AAA(cl)'; --USD5 billion U.S. commercial paper programme 'F1'; --Senior secured bonds national long-term rating 'AAA(cl)'; --Subordinated bonds national long-term rating 'AA(cl)'; --National equity rating 'Primera Clase nivel 1' Contact: Primary Analyst Diego Alcazar Director +1-212-908-0396 Latin America Financial Institutions Fitch Ratings, Inc. 33 Whitehall St. New York, NY 10004 Secondary Analyst Santiago Gallo Director +56-2-499-33-20 Committee Chairperson Rene Medrano Senior Director +503 2516-6610 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: Additional information is available at ''. 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