Fitch Affirms Banco Interamericano De Finanzas' IDRs at 'BBB-'; Outlook Stable
KEY RATING DRIVERS - VR and IDRs
BanBif Local and Foreign Currency IDRs are driven by its Viability Rating (VR) of 'bbb-', which is highly influenced by its risk appetite. Banbif's VR also factors in its weak capitalization and moderate franchise. The bank's asset quality, consistent performance, as well as its diversified funding and liquidity profile are in line with its current VR.
BanBif's capital metrics have declined in the last three years due to accelerated growth. The bank's Fitch Core Capital (FCC) ratio decreased to 7.4% at December 2015 while its tangible equity to tangible assets ratio decreased to 6.9% at the same date. Fitch believes that BanBif's capital ratios must be seen in line with its loan loss reserves, asset quality and earnings generation. However, the bank's current capitalization levels compare unfavorably with similarly rated banks and, if strong growth continues, the agency expects additional capital injections.
Banbif's performance through 2015 was driven by sustained loan volumes growth, resilient margins in spite of a volatile operating environment and the improvement in efficiency (operating ROAAs above 2% in the past four years). Nevertheless, relatively high funding costs, increased delinquency levels that have been accompanied by the increased need of loss loan provisions, continue to weigh on profitability metrics.
The bank has a relatively diversified funding structure and it is reliant on deposits (74% of the total funding at December 2015; 76% at year-end 2014 [YE14]) Additionally, concentration levels have remained moderate compared to local peers since 2011 given the bank's expansion strategy. Liquidity risk is carefully monitored, and the bank's liquidity position is ample, as BanBif held about PEN2.7 billion of cash and equivalents that represented 37% of the total short-term funding as of Dec. 31, 2015.
Asset quality remains good despite showing a rapid increase in non-performing loans (NPLs) due to Peru's reduced economic activity which has affected certain sectors that are commonly served by BanBif, such as small and medium enterprises (SMEs). However, BanBif continues to exhibit one of the lowest delinquency levels in the Peruvian banking system.
BanBif is a medium-sized universal bank that has grown to be Peru's fifth largest bank, with a market share of approximately 3.6% of total loans and 3.5% of total deposits at YE15. The bank has gradually separated from its traditional competitors, but its size greatly lags that of the four major banking franchises that dominate the country.
SUPPORT RATING AND SUPPORT RATING FLOOR
BanBif's Support Rating of '4' and Support Rating Floor of 'BB-' indicate its systemic importance for the Peruvian banking system. Being the fifth largest Peruvian bank, Fitch believes that there would be a limited propensity for support from the government, should it be required.
RATING SENSITIVITIES
IDRS AND VR
A sustained increase of BanBif's risk appetite and / or deterioration in its loan portfolio that erodes its profitability and drives overall capital cushions (as measured by FCC plus excess reserves) below 8% could pressure ratings downward. NPLs consistently above 2% and operating ROA ratios consistently below 1.5% also would be negative for creditworthiness.
A sustained performance that strengthens BanBif's FCC to RWA metrics consistently above 10% could result in a potential long-term upgrade. A more diversified low-cost funding mix and sustained improvements in efficiency levels could also benefit the bank's ratings.
SUPPORT RATING AND SUPPORT RATING FLOOR
Upside potential for the Support Rating (SR) and Support Rating Floor (SRF) is limited and can only occur over time with a material growth of the bank's systemic importance. These ratings could be downgraded if the bank loses material market share in terms of loans and customer deposits.
Fitch has affirmed the following ratings:
--Long-Term Foreign Currency IDR at 'BBB-'; Outlook Stable;
--Short-Term Foreign Currency IDR at 'F3';
--Long-Term Local Currency IDR at 'BBB-', Outlook Stable;
--Short-Term Local Currency IDR at 'F3';
--Viability Rating at 'bbb-';
--Support Rating at '4';
--Support Rating Floor at 'BB-'.
The Rating Outlook is Stable.
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