OREANDA-NEWS. Fitch Ratings has affirmed Banco Pichincha C. A. y Subsidiarias (Pichincha) and Banco de la Produccion S. A. y Subsidiarias' (Produbanco, commercially known as Produbanco Grupo Promerica) Long-term Local and Foreign Currency Issuer Default Ratings (IDRs) at 'B'. The Rating Outlooks are revised to Negative from Stable. See the full list of rating actions at the end of this release.

The Negative Outlook on Pichincha and Produbanco reflects the recent revision of Ecuador's Rating Outlook to Negative from Stable. In Fitch's view, the operating environment's high influence on the banks' ratings, which limits their potential growth, profitability and internal capital-generation capacity, as well as direct exposure to Ecuador through investment portfolios, constrain the banks' ratings to the sovereign's creditworthiness. Ecuador's growth and fiscal outlook has deteriorated due to lower oil prices and higher financing needs. The economy has entered into recession in 2016 with an expected contraction of 2%. For additional details, see 'Fitch Affirms Ecuador at 'B'; Outlook Revised to Negative ', dated Aug. 25, 2016 and available on www. fitchratings. com.

KEY RATING DRIVERS

IDRS AND VRs

Pichincha's Viability Rating (VR), or standalone creditworthiness, drives its long-term IDR. The bank's operating environment and weak profitability ratios highly influence its VR. The bank's VR also factors in pressured asset quality, tight capitalization, ample liquidity and a strong franchise. Pichincha's capital cushion to absorb unexpected losses is still limited compared with international peers. However, in Fitch's view, this is mitigated by conservative reserve coverage, moderate asset growth and a strong risk profile.

Produbanco's IDRs are driven by their VR. The bank's VR is highly influenced by the operating environment and tighter profitability. Despite its modest profitability, Produbanco's capital position remains adequate and has improved since 2015, as a result of reduced dividend payments and modest growth. The bank's asset quality compares well with the banking system average although it shows signs of deterioration. Produbanco's liquidity remains ample.

SUPPORT RATING AND SUPPORT RATING FLOOR

Pichincha and Produbanco's Support Rating (SR) of '5' and Support Rating Floor (SRF) of 'NF' indicate that Fitch believes external support cannot be relied upon, due to Ecuador's limited funding flexibility as well as the lack of a lender of last resort.

RATING SENSITIVITIES

IDRS AND VRs

Any negative rating action on the sovereign would also lead to a similar action on Pichincha and Produbanco's IDRs and VRs. Furthermore, a significant reduction in these banks' internal capital generation or an acceleration of growth that leads to a decrease in the Fitch Core Capital (FCC) metrics consistently below 9% along with a material decline in excess loan loss reserves could also result in negative rating actions.

SUPPORT RATING AND SUPPORT RATING FLOOR

Ecuador's propensity or ability to provide timely support to these banks is not likely to change given the sovereign's low speculative-grade IDR. As such, the SR and SRF have no upgrade potential.

Fitch has affirmed the following ratings:

PICHINCHA

--Long-Term Foreign Currency IDR at 'B'; Outlook revised to Negative from Stable;

--Short-Term Foreign Currency IDR at 'B';

--Viability Rating at 'b';

--Support at '5';

--Support Floor at 'NF'.

PRODUBANCO

--Long Term Foreign Currency IDR at 'B'; Outlook revised to Negative from Stable;

--Short-Term Foreign Currency IDR at 'B';

--Viability Rating at 'b';

--Support at '5';

--Support Floor at 'NF'.