Fitch Affirms Banco Santander Chile's IDR at 'A+'; Outlook Remains Negative
BUENOS AIRES & SANTIAGO, Chile -- January 31, 2013
Fitch Ratings has affirmed Banco Santander Chile's (BSC) Viability Ratings
(VRs) and Long-term Issuer Default Ratings (IDRs) at 'a+' and 'A+',
respectively. The Rating Outlook on the Long-term IDRs is Negative. A full
list of ratings actions is at the end of this rating action commentary.
BSC's IDRs and National Scale Ratings remain driven by its 'a+' VR and they do
not factor in any support from its parent, although it remains a strategically
important subsidiary for Santander. BSC's IDRs, National Ratings and VR
reflect its market-leadership position and its strong franchise within Chile,
whose economy continues to perform well. The ratings also reflect the bank's
healthy asset quality, strong profitability and funding, independent
management, and adequate capital position. Liquidity has been strengthened and
BSC benefits from a sizeable, historically stable, and well-diversified retail
deposit base. In addition, BSC has significantly reduced refinancing risk and
exposure to more price-sensitive deposits by growing core deposits and
building a liquidity cushion while maintaining access to capital markets
without any apparent rise in funding costs.
In Fitch's view, BSC is, to a large degree, ring-fenced from the rest of the
Santander group thanks to strong regulatory oversight conducted by the Chilean
Banking Regulator. In addition, BSC's Board and management teams enjoy a high
degree of operating independence and the bank is not subject to interference
from Santander in its day-to-day decision-making procedures. BSC's standalone
capital is adequate for its rating category and its liquidity position is
strong, while its exposure to the Santander group is insignificant and
constrained by stringent local regulatory rules.
Fitch has affirmed BSC's Support Rating (SR) and Support Rating Floor (SRF) at
'1' and 'A-', respectively. As the second largest bank in Chile, Fitch
considers there to be an extremely high probability that the Chilean
government (rated FC and LC IDR 'A+'/'AA-'; Outlook Stable by Fitch) will
provide support should it be required. Fitch's SRF indicates a level below
which the agency will not lower the bank's Long-term IDRs.
The Outlook on BSC's long-term IDR and National long-term rating is Negative
mirroring that on Santander's ratings. A downgrade in Santander's ratings will
likely lead to a downgrade of BSC's VR and IDR. This reflects the inherent
linkage of a subsidiary and its parent, as BSC's IDR is currently three
notches above the rating of its parent, which is the maximum Fitch considers
prudent according to its rating criteria. In spite of its intrinsic strength,
BSC's VR could potentially be dragged down by a further deterioration of
Santander, particularly in its access to or cost of funding, although this has
not been the case so far.
Downward pressure on BSC's VR could also arise from a sustained pressure on
profitability stemming from further rise in loan loss provisions (LLPs) or
from markedly lower liquidity or capitalization. More specifically, BSC's VR
could be downgraded if its return on average assets (ROAA) consistently
remains below 1.3%, its Fitch Core Capital to Weighted Assets ratio falls and
is maintained below 9% together with asset quality deterioration, and/or if
the bank significantly reduces its liquidity cushion and maintains it below
USD1 billion. In Fitch's view, there is limited upside potential in the near
future for BSC's VR.
BSC's support rating or SRF could only be affected by a downgrade of Chile's
sovereign IDRs, which is considered unlikely at the present time.
At Sept. 30, 2012, BSC was the second largest bank in Chile by total loans and
deposits, with market shares of 19.1% and 17.1% respectively, but the largest
in retail loans, with a share of 22.5%. These factors support BSC's SR and
Profitability has historically been strong, backed by healthy operating
revenues and strict cost control. At Sept. 30, 2012, however, its net income
fell by 17.2% year over year due to higher LLPs as a result of exceptional
charges, lower inflation and a rise in non-interest expenses due to
significant IT investments intended to improve productivity and efficiency
levels. As a result, BSC's return on assets and return on equity decreased to
1.49% and 18.09%, respectively at Sept. 30, 2012.
BSC's sound risk management approach and benign operating environment in Chile
have supported its healthy asset quality ratios. However, at Sept. 30, 2012,
LLPs rose to 2.05% of total loans (from 1.65% at Dec. 31, 2011) and impaired
loans to 3.04% (from 2.95%), still low, however, given the retail profile of
the loan book and solid reserve coverage (98.3%). BSC tightened its loan
admission criteria and strengthened its recovery unit to avoid further
BSC's funding is independent from its parent, in line with Santander's
policies for its subsidiaries, and it benefits from a stable and
well-diversified deposit base (core deposits accounted for 77.2% of the
total). It is also active in bond issuance locally and internationally, and
has significant lines from local and foreign banks. In the past three years it
has diversified its foreign funding both by investor and geographically.
Since 2009, BSC has strengthened its liquidity. At Oct. 31, 2012, its
liquidity cushion was USD2.7 billion (down from USD3.8 billion one year
before) and liquid assets represented a sound 24.9% of total deposits. The
bank intends to reduce this cushion further as it has diversified and improved
its funding profile.
The bank's capital base is adequate for its rating category, with a Fitch core
capital ratio of 9.29% at Sept. 30, 2012. Fitch expects these ratios to remain
solid aided by BSC's sound internal capital generation.
Fitch has affirmed BSC's ratings as follows:
--FC and LC long-term IDRs at 'A+'; Outlook Negative;
--FC and LC short-term IDRs at 'F1';
--VR at 'a+';
--Support rating 'at 1';
--Support rating floor at 'A-';
--Long-term national rating at 'AAA(cl)'; Outlook Negative;
--National long-term rating at 'AAA(cl)';
--Short-term national rating at 'N1+(cl)';
--Senior unsecured bonds at 'A+'
--USD5 billion U.S. Commercial Paper Programme at 'F1'
--National long-term rating of Subordinated bonds at 'AA(cl)';
--National equity rating at 'Primera Clase nivel 1'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);
--'Fitch Takes Actions on Banco Santander's Latin American Subsidiaries' (June
--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012).
Applicable Criteria and Related Research:
Rating FI Subsidiaries and Holding Companies
Global Financial Institutions Rating Criteria
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