Fitch Affirms Banco Agricola's IDR at 'BB ' Following Peer Review; Outlook Negative
AGRICOLA'S KEY RATING DRIVERS - IDRs, VR, National Ratings and Support
Agricola's IDR is driven by its VR. Despite the challenging operating environment, Agricola's robust capitalization and an ample and diversified deposit base highly influence its ratings. The ratings also consider Agricola's strong franchise, sound and stable profitability and good asset quality. Additionally, the bank's performance has shown a proven resilience to downturns in economic cycles.
Agricola's IDR is currently constrained by the Country Ceiling and, together with its VR, remains two notches above El Salvador's Sovereign Rating. Fitch believes there is a close link between bank and sovereign credit risk (and therefore ratings), and it is exceptional for banks to be rated above their domestic sovereign.
Notably, in the absence of a strong stand alone performance, Agricola's IDRs would remain at the same level given the support it would receive from its parent, Bancolombia (rated 'BBB'/Positive Outlook by Fitch), should it be required. This is reflected on Agricola's support rating of '3', indicating a moderate probability of support. In Fitch's opinion, Agricola provides a meaningful and recurring share of revenues to its parent and is an important subsidiary for Bancolombia's growth and diversification in Central America.
Agricola continues exhibiting a robust capital base benefited from a low balance sheet growth and sound profitability, over the past five years. This has been reflected in the bank's Fitch Core Capital which has surpassed 18% of risk weighted assets over the same period. In Fitch's view, Agricola's overall loss-absorption capacity will remain sound and above that of its peers over the medium term.
The bank's large customer base is reflected in its diversified and stable funding derived from its dominant market position and large network of service points. This is also reflected in the bank's low and relatively stable concentration of the 20 largest depositors and a relatively stable and balanced deposits mix.
The bank's sound operating profitability has been higher than the system average over the past five years, although slightly lower than the peak reached in the year 2011. Agricola's financial results are leveraged by stable and relatively low credit-risk costs, outstanding operating efficiency, and lower than average funding costs.
The bank's return on assets (2014: 2.2%) was affected by slightly higher funding costs and operating expenses. The bank's a conservative approach to lending, the permanent charge-off policy and good collection procedures result in solid and improving loan quality indicators. Agricola has maintained a robust and comfortable cushion of reserves as it has fully reserved loans 30-plus days overdue. Agricola's loan concentration, however, remains relatively high.
AGRICOLA'S RATING SENSITIVITIES - IDR, VR, National Ratings and Support
The Negative Outlook for Agricola's IDR reflects that an eventual downgrade of El Salvador's sovereign rating ('BB-'/Negative Outlook) could result in a lower country ceiling ('BB+'). This would, in turn, lead to a downgrade of Agricola's IDRs and VR. If the sovereign ratings are eventually affirmed at 'BB-' and the Rating Outlook is revised to Stable from Negative, it is highly likely that Agricola's IDR would also be affirmed with a Stable Outlook. A sharp decrease in Agricola's profitability and capitalization levels could, in turn, move the bank's VR downward.
Agricola's national ratings would not be affected should El Salvador's sovereign and country ceiling be downgraded as its relative strength in the local market remains unchanged.
The support rating is sensitive to a change in Bancolombia's ability or propensity to provide support to Agricola.
INVERSIONES FINANCIERAS BANCO AGRICOLA'S KEY RATING DRIVERS AND SENSITIVITIES - National Ratings
Inversiones Financieras Banco Agricola (IFBA)'s national ratings are aligned with Agricola's national ratings as the bank represents around 99% of total assets and earnings. Changes in IFBA's ratings would mirror those of Agricola.
Fitch has affirmed the following ratings:
Banco Agricola S.A.
--Long-term IDR at 'BB+'; Outlook Negative;
--Viability Rating at 'bb+';
--Short-term IDR at 'B';
--Support at '3';
--Long-term National Rating at 'AAA(slv)'; Outlook Stable;
--Short-term National Rating at 'F1+(slv)';
--Senior Unsecured Debt Long-term Rating at 'AAA(slv)';
--Senior Secured Debt Long-term Rating at 'AAA(slv)'.
Inversiones Financieras Banco Agricola S.A.
--Long-term National Rating at 'AAA(slv)'; Outlook Stable;
--Short-term National Rating at 'F1+(slv)'.
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