November 8, 2016 / 5:01 PM / 2 years ago

Fitch Affirms Banco de Credito e Inversiones' IDR at 'A-'/Outlook Positive

(The following statement was released by the rating agency) NEW YORK, November 08 (Fitch) Fitch Ratings has affirmed Chile's Banco de Credito e Inversiones's (BCI) Viability rating (VR) and Foreign and Local Currency Long-Term Issuer Default Ratings (IDRs) at 'a-'/'A-'. Also affirmed is the long-term National rating at 'AA+(cl)'. The Rating Outlook is Positive. The rating action is part of Fitch's 'Large Chilean Banks Peer Review 2016'. A complete list of rating actions is provided at the end of this release. KEY RATING DRIVERS - VR, IDRs AND NATIONAL RATINGS BCI's affirmation considers Fitch's assessment regarding the adequate management of execution risks and impact over the past few months of the acquisition of City National Bank in the U.S. (CNB) on BCI's overall financial strength. As was expected by Fitch, the bank was able to recover its capital ratios after the recent CLP268 billion capital injection (to a Fitch Core Capital of 9.4% as of September 2016, from 7.8% as of December 2015). Fitch will continue evaluating the bank's ability to sustain its restored capitalization metrics amid a more restrictive operating environment which has partially affected credit growth and interest margins in the financial system. BCI's IDRs are also driven by its strong domestic franchise, sound balance sheet and liquidity management, improved asset quality, ample funding sources, and its relatively high profitability over the past few years, although this last has been recently pressured. BCI has strengthened its credit risk framework, defining stricter risk appetite standards, implementing best practices throughout the entire rating process and closely monitoring its commercial loans. We believe these advances allowed BCI to reduce its global portfolio risk profile, impaired loans and debtors' concentrations over the past two years. Credit quality metrics remain sound and have outperformed some of its regional peers. This is reflected in a reduction of loan impairment charges and a marked decrease of non-performing loans (NPLs) to 1.4% as of September 2016 from a 2.0% average over the past four years. In Fitch's view, the improving trend will probably stabilize due to the more challenging operating environment and modest loan growth prospects for 2017 in the domestic market. The current FCC level at 9.4% appears low relative to similarly rated international peers (median 13.9% at YE2015); however, Chilean capital and profitability metrics are affected by tougher risk-weighting rules in Chile. Operating profit to RWAs stood at 1.8% as of September 2016 (2.1% average 2012-2015). SUPPORT RATING (SR) AND SUPPORT RATING FLOOR (SRF) BCI's SR and SRF are based on Fitch's view that BCI is a domestic systemically important financial institution (D-SIFI). Consequently, there is an extremely high probability of external support from the Chilean sovereign to the bank. Chile is highly rated (Foreign currency Long-Term IDR 'A+'/Stable Outlook) and, in Fitch's opinion, has a very high propensity to support the bank. SENIOR UNSECURED, SECURED AND SUBORDINATED DEBT BCI's senior unsecured bonds are rated at the same level as its National long-term rating, considering the absence of credit enhancement or subordination feature. Fitch rates BCI's National scale subordinated debt two notches below its National long-term issuer rating. The two-notch difference considers the loss severity due to its subordinated nature (after default), and no additional notching for non-performance risk given the subordinated debt's gone-concern feature (triggered after the point of non-viability). RATING SENSITIVITIES IDRs, VR, AND NATIONAL RATINGS The Rating Outlook for the Long-Term IDRs and National rating is Positive. The resolution of the Positive Outlook, over the next 6-12 months could be driven by sustaining proven capital metrics amid a tougher operating environment while maintaining solid profitability and asset quality ratios. This would mean an FCC ratio/RWAs consistently above 9.5%, sustaining operating profit/RWAs above 1.5%, and NPLs consistently below 2.0%. The rating could also benefit if the bank is able to sustain and continue growing its franchise, and its ample liquidity and funding position. The Outlook could be revised to Stable if there are relevant pressures on BCI's financial performance or if financial metrics described above does not perform as expected. SUPPORT RATING AND SUPPORT RATING FLOOR BCI's SR or SRF would only be affected by a downgrade of Chile's sovereign IDRs, which is considered unlikely at the present time. SENIOR UNSECURED AND SUBORDINATED DEBT Senior and subordinated debt ratings would generally move together with the bank's long-term National rating. The subordinated debt will remain two notches below the bank's National long-term rating. Fitch has affirmed BCI's ratings as follows: --Long-Term Foreign and Local Currency IDRs at 'A-'; Outlook Positive; --Viability rating at 'a-'; --Long-term foreign currency senior unsecured at 'A-'; --Long-term National rating at 'AA+(cl)'; Outlook Positive; --National long-term rating senior unsecured bonds at 'AA+(cl)'; --Long-term National rating subordinated bonds at 'AA-'; --Foreign and Local Currency Short-Term IDRs at 'F1'; --Support Rating at '1'; --Support Rating Floor at 'A-'; --Short-term National rating at 'N1+(cl)'; --National equity rating at 'Primera Clase Nivel 1'. Contact: Primary Analyst Mark Narron Director (Latin America Financial Institutions +1-212-612-7898 Fitch Ratings, Inc. 33 Whitehall St. New York, NY 10004 Secondary Analyst Abraham Martinez Director +56-2-499-33-17 Committee Chairperson Veronica Chau Senior Director +52 81 8399 9169 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 15 Jul 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1014478 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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