Fitch Affirms Banco Davivienda S.A. at 'BBB-'; Outlook Stable
NEW YORK -- January 24, 2013
Fitch Ratings has affirmed Banco Davivienda S.A.'s (Davivienda) viability
rating (VR) at 'bbb-' and Issuer Default Ratings (IDRs) at 'BBB-'. A full list
of rating actions follows at the end of this release.
KEY RATING DRIVERS:
Davivienda's ratings reflect the bank's clear long-term strategy, sound asset
quality and risk management, well established franchise, consistent
performance, ample, diversified funding. Fitch's view of Davivienda's
creditworthiness is tempered by the bank's somewhat stretched capital base,
moderate efficiency and the execution risk related to its recent acquisitions.
Davivienda's support rating and support rating floor are driven by Fitch's
opinion that there is a moderate probability of support from Colombia's
central bank, given Davivienda's size and systemic importance. The ability of
the central bank to provide support is constrained by the country's financial
and fiscal standing; Colombia's sovereign rating is 'BBB-' with a Stable
Davivienda's VR and IDRs would benefit from a steady, material, and swift
restoration of its capital base, a seamless integration of its recently
acquired subsidiaries in Central America, as well as from improved efficiency
that would underpin its performance, while maintaining reasonable asset
quality and sound reserves. Upside potential on these ratings is contingent on
improving capital adequacy above pre-acquisition levels, which Fitch believes
can only be achieved over the medium term.
A disruptive integration of Davivienda's new subsidiaries, a significant
decline in its capital ratios - namely a Fitch Core Capital below 6% - or a
severe deterioration of asset quality that would pressure the bottom line
through increased loan loss provisions, would negatively affect the bank's VR
Changes in the support rating and support rating floor are contingent on
changes in Colombia's sovereign ratings.
Davivienda has shown a proven ability to devise and execute a long-term
strategy. Building patiently around its core mortgage business, Davivienda
became a universal bank and successfully diversified its target market,
revenue sources, funding base, and loan portfolio. This has allowed the bank
to gain market share while leaving behind its monoline structure and image.
Davivienda cherry-picked its mergers and acquisitions to complement and
enhance its business then seamlessly integrated them into a new organization
that is strengthened by its parts. In late 2012, the bank closed the
acquisition of the former subsidiaries of HSBC in El Salvador, Honduras and
Costa Rica. This transaction has affected the bank's capital ratios and
profitability but these are expected to revert to pre-acquisition levels
within 18-30 months.
Owing to its sound risk management policies and mature organization, the bank
was able to bring asset quality under control while bolstering reserves under
increasingly stringent regulation. Davivienda's asset quality ratios (NPLs:
1.6% at September 2012) compare well to those of its regional peers even
though its loan portfolio has a slightly riskier profile.
A few years of sustained growth and steady performance as well as a
conservative dividend payout policy resulted in a rapid improvement in the
size and quality of Davivienda's capital. The burden of its goodwill had also
declined and become more manageable but increased again due to the acquisition
of HSBC's subsidiaries in Central America.
By the same token, capital levels declined to the lower end of similarly rated
banks, with Fitch Core Capital declining to the 6%-6.5% range and Fitch
Eligible Capital to the 9.0-9.5% range. Fitch's assessment of Davivienda's
capital adequacy considers its sound internal capital generation (earnings)
and ample loan loss reserves. Fitch expects that sustained profitability and
conservative dividend payouts will allow the bank to restore its capital
levels closer to pre-acquisition levels (6.5%-7.5% for the FCC and 9.5%-10.5%
for the FEC respectively) by the end of 2014.
Sound loan growth and resilient margins have resulted in a steady performance
that may not be as spectacular as that of some regional high-flyers but
remains impressive (ROAA was about 1.96% at Sept. 2012) given the economic
background and structural constraints to its retail business.
Its heightened market presence allowed Davivienda to widen and deepen its
deposit base. At the same time, the bank opened its capital to local investors
and actively tapped the local and international securities market.
A relatively high cost structure and low non-interest revenues weigh on its
efficiency ratios. Efforts are underway to improve this and bolster the bank's
performance but gains in this area tend to be slow to come. In the short term,
efficiency should improve through stronger revenues rather than nimbler
processes or better cross-selling.
Davivienda is Colombia's third largest bank by assets with a market share of
about 11% at end 2012. It is a universal bank operating across all business
segments with a particular strength in the consumer business. The bank is
controlled by Sociedades Bolivar, which has interests in the construction and
insurance industries in Colombia.
Fitch has affirmed Davivienda's ratings as follows:
--Long-term foreign currency IDR at 'BBB-'; Outlook Stable;
--Long-term local currency IDR at 'BBB-'; Outlook Stable;
--Short-term foreign currency IDR at 'F3';
--Short-term local currency IDR at 'F3';
--Viability rating at 'bbb-';
--Support Rating at '3';
--Support Rating Floor at 'BB+';
--Senior unsecured debt at 'BBB-';
--Subordinated debt at 'BB+'.
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).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
Diego Alcazar, +1-212-908-0396
One State Street Plaza
New York, NY 10004
Andres Marquez, + 57 1 326-9999
Alejandro Garcia, +5281-8399-9146
Elizabeth Fogerty, +1-212-908-0526 (New York)
Press spacebar to pause and continue. Press esc to stop.