Fitch Affirms COFIDE's IDR at 'BBB+'; Outlook Stable
KEY RATING DRIVERS
IDRS, SENIOR UNSECURED DEBT AND SUPPORT RATINGS
COFIDE's ratings reflect the strong probability that the entity would receive support from the Peruvian government, if needed. Although there is no explicit guarantee, Fitch's opinion takes into account the critical participation of the issuer in implementing development policy, the majority state ownership, as well as the operational and financial synergies with the public administration. Peru's ability to offer support is reflected in its sovereign rating ('BBB+'/Outlook Stable).
COFIDE is a key element in fulfilling some of the Peruvian government's major goals: infrastructure and economic and social development. The entity has a relevant role in the execution of policies by serving sectors with limited access to funding or lending resources to projects underserved by commercial banks. The issuer's strategic importance is underpinned by the elevated infrastructure deficit in Peru and the still-low level of financial inclusion.
The entity has comfortable levels of capital to absorb growth and an established track record of profit retention. However, Fitch expects this ratio to continue decreasing driven by sustained asset growth, while the entity plans to maintain regulatory capitalization at around 25%.
COFIDE has maintained a low, though volatile, nonperforming loans (NPLs) ratio. Fitch recognizes that the rapid growth of the portfolio, significant concentrations and the long-term nature and profile of project finance facilities may result in sudden changes in those asset quality trends, as seen in December 2014, a level now controlled.
The wholesale role of the entity, the size and the limited number of financed projects has resulted in elevated concentrations per borrower (top 20: 2.1x equity) at June 2016.
COFIDE's operating profitability has been good and sustained over the years. Profitability has been driven mainly by loan growth (28.5% on average from 2012-2015, although future growth is expected to be around 10% per year). At June 2016, ROAA and ROAE totaled 0.66% and 3.25%, respectively, levels slightly below that of the average from 2012 to 2015 (3.40% and 0.96%, respectively).
Profitability ratios rely strongly on the adequately managing operating costs, which drives its stable efficiency ratios and the contained credit costs. The entity's relatively limited earnings generation is somewhat offset by its strong loss absorption capacity from its capital ratios and good asset quality.
SUBORDINATED DEBT
COFIDE's subordinated bonds are plain vanilla and in Fitch's opinion, their probability of non-performance is equivalent to that of COFIDE's senior bonds, but they would incur a higher loss in case of default due to their subordinated nature. Hence, they are rated only one notch below the bank's IDR.
RATING SENSITIVITIES
IDRS, SUPPORT RATINGS AND SENIOR UNSECURED DEBT
COFIDE's ratings will mirror any potential change in Peru's sovereign ratings, which currently have a Stable Outlook.
Although not a baseline scenario, the ratings could change if Fitch perceives a decrease in its strategic importance to the government's public policies.
SUBORDINATED DEBT
The subordinated notes' rating is sensitive to any changes in the bank's IDR.
The rating actions are as follows:
--Long-Term Foreign Currency IDR affirmed at 'BBB+'; Outlook Stable;
--Long-Term Local Currency IDR affirmed at 'A-'; Outlook Stable;
--Short-Term Foreign Currency IDR affirmed at 'F2';
--Short-Term Local Currency IDR upgraded to 'F1' from 'F2';
--Support Rating affirmed at '2';
--Support Rating Floor affirmed at 'BBB+';
--Senior unsecured debt affirmed at 'BBB+';
--Subordinated debt affirmed at 'BBB'.
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