Fitch Affirms BBVA Banco Frances' VR at 'ccc' and IDR at 'CCC'
KEY RATING DRIVERS
VR AND IDR
BBVA Frances' ratings are driven and constrained by the weak and deteriorating operating environment in Argentina, characterized by ample economic imbalances, and the risk of increasing political or regulatory intervention on the banking system. BBVA Frances' ratings also considers the restrictive default of the Argentine sovereign, which triggered in July, 2014 a downgrade of the country's sovereign long-term LC IDR and Country Ceiling to 'CCC' from 'B-'.
BBVA Frances' ratings benefit from the ample experience of its main shareholder, Spain's Banco Bilbao Vizcaya Argentaria (BBVA; rated 'A-'/Outlook Stable by Fitch), as well as from its stable and growing franchise as one of the four largest private banks in the country. The bank's ratings also reflect its adequate asset quality, reasonable profitability, as well as its strong capital adequacy.
In Fitch's view, regardless of BBVA Frances' overall reasonable financial condition, its ratings are currently capped by the LC sovereign rating, due to the weak and worsening operating environment, and the challenges posed by the sovereign's delicate position with foreign creditors.
BBVA Frances is a universal commercial bank that provides all traditional financial products and services and has a strong and leading franchise that has been positioned as the third private sector bank in the country in terms of loans and in term of deposits.
The bank's ability to increase net interest income and fee revenues has steadily enhanced its financial performance in recent years. Fitch believes that the performance of BBVA Frances will remain satisfactory, sustained by its capacity to generate revenues, its good asset quality and well-controlled operating expenses. However, the bank's results, like the rest of the financial system, could be affected by the volatile environment marked by an election year, weak credit demand and high inflation.
Despite a slight increase of non-performing loans (NPLs) since 2013, the bank's asset quality continues as the one of the highest among Argentine banks. As of March 2013, non-performing loans remain below 1% of total loans and the loan loss reserves coverage is above 2.3 times of impaired loans. An increase in impairments is expected in the near future, due to higher inflation and mounting challenges in the operating environment. However, Fitch expects BBVA Frances could maintain asset quality metrics at healthy levels.
The bank's capital adequacy is sound and primarily supported by high internal capital generation through strong and sustained earnings, coupled with the restrictions of dividend payments. BBVA Frances' Fitch core capital ratio was a comfortable 16.6% as of March 2015. Fitch estimated that the capitalization of the bank will be maintained at satisfactory levels, favoured by the lower growth in loans and the bank's good ability to generate sustained earnings.
BBVA Frances' main funding source is its ample core customer deposits that have continued to increase steadily. As of March 2015, these accounted for 89% of total funding showing a growth of 22.9% over March 2014, driven by demand deposits. Demand deposits represented nearly 60% of the total deposits in the last two years, a situation that favours the bank's funding cost. Liquidity is comfortable for most major Argentine banks, despite the short-term nature of most liabilities usually, since the tenors of assets are short as well. Therefore BBVA Frances' liquidity ratios are ample due to highly liquid assets.
SUPPORT RATING
Despite the importance of BBVA Frances to its parent, their common brand and integration levels which normally suggest some probability of support; country risks in Argentina may limit the ability to provide support to local subsidiaries of foreign bank groups. As such and independent on the parent's ability (BBVA rated 'A-' by Fitch) and willingness to support BBVA Frances, although possible, cannot be relied upon.
RATING SENSITIVITIES
VR AND IDR
Any downgrade of Argentina's sovereign rating could trigger further downgrades in BBVA Frances's ratings.
Also BBVA Frances's ratings could be affected if the worsening operating environment drives material deterioration in asset quality, earnings, and/or loss absorption capacity. Material increases in liquidity and/or refinancing risk could also put downward pressure on BBVA Frances's ratings.
Upside potential of BBVA Frances' ratings is heavily contingent upon positive developments in the sovereign rating dynamics.
SUPPORT RATING
Changes in the SR of BBVA Frances are highly unlikely in the foreseeable future.
Fitch has affirmed the ratings as follows:
BBVA Frances
--LC long-term IDR at 'CCC';
--Viability Rating at 'ccc';
--Support at '5'.
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