OREANDA-NEWS. Fitch Ratings has affirmed Banco Agromercantil de Guatemala's (BAM) Long-Term Issuer Default Rating (IDR) at 'BB+' following a peer review of Guatemala's largest banks. The Rating Outlook is Stable. A full list of rating actions is at the end of this release.

KEY RATING DRIVERS
BAM - IDRS, VR, NATIONAL RATINGS AND SUPPORT RATINGS
BAM's IDRs and national ratings reflect Fitch's opinion that the support from its ultimate shareholder, Bancolombia ('BBB+'/Rating Watch Negative) will be timely and sufficient if needed. In the agency's opinion, BAM is an important subsidiary for Bancolombia, based on its role in Bancolombia's expansion and diversification in Central America as well as the potential reputation risk it represents to its parent. Bancolombia's propensity to support its new subsidiaries is influenced by the relevant reputational risk that a default from any of these entities would pose to Bancolombia, resulting in a Support rating of '3'. As of September 2015, BAM accounted for 5.1% of Bancolombia's consolidated assets and net income. In Fitch's opinion, Bancolombia's majority ownership will enhance management quality through the transfer of know-how, closer integration and implementation of best practices. BAM's strategic objectives for this year will focus on leveraging on its integration with Bancolombia as well as improving efficiency levels.

The bank's standalone creditworthiness, indicated by its Viability Rating (VR), is influenced by the Guatemalan operating environment and moderate capital ratios. Offsetting these factors is the bank's good asset quality, stable liquidity and funding limited pricing-power, above market average historic credit growth rates that can imply heightened risk appetite, concentration risks, and moderate profitability.

BAM's capital buffers, together with strong loan-loss reserves, are moderate and have declined as lending volumes increased. The bank's management expects a moderation in loan growth to levels more commensurate with internal capital generation rates. In the agency's opinion, maintaining a sound loss-absorption cushion is necessary for the bank to offset concentration risks and sustain business growth.

Like all major local banks, BAM has a significant exposure (76.3% of equity) to the Guatemalan sovereign (Local Currency and Foreign Currency IDRs of 'BB') through the holding of large securities portfolios. Fitch does not expect this to change due to limited investment options in the country.

BAM's funding profile consists of a diversified and stable base of short-term household deposits. To reduce liquidity gaps, the bank has increased the use of wholesale funds to extend the maturity of its liabilities. Tighter underwriting criteria and a stricter collection process will continue driving BAM's sound loan quality. The agency anticipates some credit quality deterioration as the loan portfolio seasons, but this will be easily manageable for the bank. BAM employs provisioning policies aligned with Bancolombia's practices that are more conservative than those required by local regulations.

BAM's corporate orientation explains the material obligor concentration, which is the largest source of credit risk. Fitch does not expect a material decline in concentration levels due to the relatively limited corporate market in Guatemala, dominated by conglomerates and family-owned groups. The top 20 loans accounted for 35.1% of gross loans; all of these exposures were performing well and of very high credit quality.

Margin compression, due to increased funding costs and heightened competition in BAM's target segments, led to lower profitability indicators in 2015. Fitch expects that improving operating efficiency may provide a modest upside potential to improve core earnings in the short term, but convergence with peers is no longer the agency's base case.

AGROMERCANTIL SENIOR TRUST (AST)
Agromercantil Senior Trust's (AST) rating is in line with BAM's IDR reflecting that the senior unsecured obligations rank equally to the bank's unsecured and unsubordinated obligations.

MERCOM - NATIONAL RATINGS h
Mercom's national ratings are based on the support it would receive from its ultimate shareholder, Bancolombia, if needed. Mercom is an important subsidiary for the group in Guatemala given it operates in complementary market segments enhancing BAM's business model and reflects a high degree of integration.

RATING SENSITIVITIES
BAM
BAM's Foreign Currency IDR is capped by Guatemala's country ceiling. The bank's Long-Term Local Currency IDR is above the sovereign's Local Currency IDR and as such would be sensitive to any sovereign rating action. Downward risk for the bank's IDRs, national ratings and support rating is limited given its parent support but the ratings could be downgraded if Fitch's assessment of Bancolombia's ability or willingness to support its subsidiaries changes. Currently, there is no upside potential for the bank's IDRs as these are above the sovereign's IDRs, which have a Stable Outlook.

BAM's IDRs and National Scale ratings will not be affected because Fitch's baseline scenario is that a potential downgrade in the ratings of Bancolombia, if any, would be limited to one notch.

AST
Changes in the notes' rating would derive from changes in the same direction in BAM's IDR.

MERCOM
A downgrade in Mercom's ratings is contingent on Bancolombia's ability and propensity to support its operations if needed.

Fitch has affirmed the following ratings:

Banco Agromercantil de Guatemala, S.A.
--Long-Term Foreign Currency IDR at 'BB+'; Outlook Stable;
--Short-Term Foreign Currency IDR at 'B';
--Long-Term Local Currency IDR at 'BBB-'; Outlook Stable;
--Short-Term Local Currency IDR at 'F3';
--Viability Rating at 'bb';
--Support at '3';
--National scale long-term rating at 'AAA(gtm)' ;
--National scale short-term rating at 'F1+(gtm)'.

Agromercantil Senior Trust
--Long-term foreign currency loan participation notes at 'BB+'.

Mercom Bank Limited
--National scale long-term rating at 'AAA(gtm)';
--National scale short-term rating at 'F1+(gtm)'.