Fitch Ratings has affirmed Banco Nacional de Costa Rica's (BNCR) Issuer Default Rating (IDR) at 'BB+' and Viability Rating (VR) at 'bb+'. A complete list of rating actions follows at the end of this press release.
BNCR's IDRs are driven by the explicit sovereign guarantees for all its liabilities. This benefit, conferred on it by the Ley Organica del Sistema Bancario Nacional (National Banking System Law), allows BNCR's IDRs to be aligned to Costa Rica's sovereign ratings. In turn, BNCR's VR reflects the bank's strong franchise, ample funding, sound liquidity, and adequate capital ratios, while also factoring in weak loan portfolio quality, low loan loss reserves, and below average efficiency relative to international peers, though in line with the Costa Rican banking system.
The Outlook on the long-term rating remains Stable. As the bank's main shareholder is the Costa Rican government, changes in the IDRs are contingent on sovereign rating actions. While upgrades in the bank's VR are unlikely in the foreseeable future, a material deviation of the bank's asset quality from Fitch's base case scenario could trigger a downgrade in BNCR's VR.
BNCR's loan growth decelerated in 2012 and is below the market average. Asset quality indicators are weaker than those of international peers (emerging market commercial banks with a Viability Rating in the 'bb' category) and compare unfavorably with those of the Costa Rican banking system. As of 1H'12, past due loans accounted for 3.17% of total loans and reserves coverage declined a historic low of 53%, despite the high loan loss provision expense and the significant amount of charge-offs and foreclosed assets observed over the past few years after the crisis, especially in the real estate and tourism sectors. In Fitch's base case scenario loan loss provisions will continue curbing the bank's profits but credit quality indicators should stabilize. However, deterioration of specific credits in high risk segments is not ruled out, as the performance of some credits in these sectors is still uncertain.
Although the bank's operating profit to average total assets ratio improved, it is still below the market average due to high operating expenses and provisions. At the same time, the ROAA and ROAE ratios at 1Q'12 compared favorably with peers and have exceeded those reported at YE2008, reflecting a tax provision reversal registered during the first semester. Fitch expects these ratios to decline as YE12 net profits will be sensitive to the amount of foreclosures and loan loss provisions expenses registered during the year.
BNCR maintains adequate and stable capital ratios. In Fitch's opinion, capital levels are crucial for the bank's strategy and target capital adequacy, especially considering the bank's low reserves coverage. In the event of an increase in expenses or compulsory contributions, Fitch would expect asset growth to slow down or capital ratios to decrease slightly.
BNCR's dominant market position reflects both its broad geographic penetration and its solid deposit base. At 1Q'12, the bank held a market share of 30.5% of total deposits and 26.5% of loans, and was the largest bank in the country and the largest state-owned bank in Central America.
Fitch has affirmed BNCR's ratings as follows:
--Long-term IDR at 'BB+'; Outlook Stable;
--Short-term IDR at 'B';
--Long-term local currency IDR at 'BB+'; Outlook Stable;
--Short-term local currency IDR at 'B';
--Viability Rating at 'bb+';
--Support Rating at '3';
--Support Rating Floor at 'BB+';
--Long-term national rating at 'AA+(cri)'; Outlook Stable;
--Short-term national rating at 'F1+(cri)';
--Long-term senior unsecured bonds at 'AA+(cri)';
--Commercial Paper at 'F1+(cri)'.
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. 16, 2011);
--'National Rating Criteria' (Jan. 19, 2011).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
National Ratings Criteria
Theresa Paiz-Fredel, +1-212-908-0534
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Marcela Galicia, +503- 25166612
Fitch Centroamerica, S.A.
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Rene Medrano, + 503-2516-6610
Maria Rita Goncalves, + 5521 4503 2621
Elizabeth Fogerty, +1-212-908-0526