Fitch Affirms Banco Provincial's IDR at 'B+'; Outlook Negative
NEW YORK -- February 13, 2013
Fitch Ratings has affirmed Venezuela-based Banco Provincial's (Provincial)
long-term Issuer Default Rating (IDR) at 'B+' with a Negative Rating Outlook.
A full list of Provincial's rating actions follows at the end of this press
RATING ACTION RATIONALE
Provincial's financial profile, as reflected in its Viability Rating (VR),
drives the bank's long-term IDR. Provincial's IDRs are at the same level as
Fitch's Sovereign ratings for Venezuela (foreign and local currency IDRs 'B+';
Fitch has affirmed Provincial's VR and IDRs as the bank remains well
positioned to deliver strong financial results (even when adjusting for
inflation) despite the high degree of government intervention in the banking
business. In Fitch's opinion, strong risk policies bolstered by Provincial's
largest shareholder, Spain's Banco Bilbao Vizcaya Argentaria (BBVA), combined
with the bank's vast knowledge of the Venezuelan market will continue to
underpin the resilience of the bank's solid credit profile, even with the
expected weakening of the operating environment this year.
Fitch believes that the shareholders' willingness to provide support should it
be required is possible, though it cannot be relied upon due to the
government's interference with the banking system, which is what results in
Provincial's Support rating of '5'. Despite Provincial's systemic importance,
its support floor of 'No Floor' (NF) reflects Venezuela's speculative-grade
rating, and the government's limited willingness and capacity to provide
SENSITIVITIES/RATING DRIVERS - IDRS, VR, AND NATIONAL RATINGS
Provincial's ratings reflect its strong franchise and financial profile. The
ratings also incorporate the bank's conservative risk management and
operational support from BBVA. Despite the bank's strong credit profile, the
ratings are constrained by the sovereign due to the negative effects of
government control over the financial sector and the broader economy
(reflected in Venezuela's 'B+'; Negative Outlook).
Provincial continues to be one of the most profitable private sector banks in
Venezuela due to its stable and ample net interest margin, controlled credit
costs and better efficiency. The bank's ROAA ratio reached a historic peak of
5.85% (not adjusted for inflation) at year-end 2012, comparing favorably to
both domestic (private sector universal banks) and international (emerging
market commercial banks with a VR of 'b-/b/b+') peers. Given the recent
currency devaluation, Fitch expects lower credit growth, as well as higher
credit costs and operational expenses to pressure earnings in 2013.
Nevertheless, Provincial is likely to maintain its strong financial
performance relative to peers, even on an inflation-adjusted basis.
Low impaired loans and charge-offs and ample loan loss reserve coverage
continues to support the bank's stellar asset quality relative to peers. The
bank's loan portfolio is adequately diversified given its leading position in
most business segments. Although Fitch expects asset quality to deteriorate in
the short term due to the challenging economic environment, Provincial's
indicators should remain among the best relative to domestic and international
Access to ample retail funding is a key strength of the bank in terms of
funding costs and liquidity management as well as a tool to leverage its
growth through cross-selling from its vast customer base. Excess liquidity
continued to drive robust deposit growth in 2012, reducing Provincial's
loans/customer deposits ratio to 59% at year-end. Fitch expects the bank's
loan portfolio to remain fully funded by deposits over the medium term.
Moderate cash dividends limited by local regulation and high profits sustained
Provincial's equity growth at almost the same level as asset growth. As a
result, the bank's Fitch core capital/adjusted weighted risks ratio decreased
only slightly to 17.2% at YE2012 from 17.5% at YE2011. Nevertheless,
Provincial's capitalization still compares favorably to both domestic and
international peers, a trend Fitch expects to continue in 2013.
SENSITIVITIES/RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR
There is limited upside to the bank's Support rating and Support Floor over
the medium term given the sovereign's current ratings and Outlooks and the
government's propensity to intervene in the banking business and overall
private sector activities.
Provincial is Venezuela's third largest bank, with a 12.2% market share in
terms of total assets at Dec. 31, 2012. Spain's BBVA controls about 55.2% of
Provincial's equity and Grupo Polar is the second largest shareholder with a
Fitch has affirmed the following ratings:
--Long-term foreign and local currency IDRs at 'B+'; Outlook Negative;
--Short-term foreign and local currency ratings at 'B';
--Viability at 'b+';
--Support at 5;
--Support Floor NF;
--Long-term national-scale rating at 'AA+(ven)';
--Short-term national-scale rating at 'F1+(ven)'.
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);
--'Outlook 2013: Andean Banks' (Dec. 14, 2012).
Applicable Criteria and Related Research:
2013 Outlook: Andean Banks
Global Financial Institutions Rating Criteria
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Theresa Paiz Fredel, +1-212-908-0534
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Pedro El Khaouli, +58-212-286-3844
Alejandro Garcia, +52 81 8399 9146
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