OREANDA-NEWS. Fitch Ratings has affirmed Central American Bank for Economic Integration (CABEI)'s Long-term foreign and local currency IDRs at 'A'. The Rating Outlook is Stable. The issue ratings for CABEI's senior unsecured Foreign and Local Currency bonds are also affirmed at 'A' and 'FI', respectively. The National Rating of CABEI's multiple issuances were also affirmed.

KEY RATING DRIVERS

The affirmation and Stable Outlook reflect the following key rating factors:

CABEI's solid capital position is a key rating driver. CABEI's equity-to-asset ratio remained solid at 31%, comparing well with peers. In Fitch's view, the usable to required capital of 2.2x is sufficient to support the CABEI's current and projected operations; however, the ratio is significantly below peers rated in the 'AA' and 'AAA' categories. In Fitch's view, CABEI's profitability and internal capital generation, consistently above peers, are commensurate with its balance sheet. Net interest revenues and commitment fees maintained a positive trend and the cost/income ratio continued to improve from its historic levels.

In Fitch's view, asset quality metrics are good and likely to remain controlled in the medium term. However, CABEI's credit risk exposure is higher than peers, reflected in the average rating of its loan portfolio of 'B', in line with the risk profile of the region. The agency recognises that asset quality metrics remain sensitive to the changes in the operating environment. In recent years, the ratio of impaired loans to gross loans improved as the share of sovereign exposures in the bank's portfolio increased. However, the limited number of potential sovereign borrowers translates into high loan concentration.

In Fitch's view, such risk is mitigated in part by CABEI's preferred creditor status and ample loan loss reserves coverage. As other multilateral development banks (MDBs), CABEI benefits from a number of privileges and immunities, including preferred creditor status on the territory of its member states, and exemption from all taxation and custom duties.

In Fitch's opinion, investment policies are adequate, though not as conservative as higher rated entities. Recent improvements in the investment policy include an increase in the proportion of investments rated 'A' or above.

CABEI's IDR is not driven by support; however, in Fitch's view, shareholders have a vested interest in supporting the MDB, should it run into difficulties. Fitch's opinion on the propensity of support considers CABEI's significant market presence in the region as the largest funds provider, compared to other MDBs, and its important role in the economic development of the region.

RATING SENSITIVITIES

Improvements in risk management policies that align CABEI's liquidity and investment policies with those of higher rated MDBs could lead to an upgrade of CABEI's IDRs.

Also, a sustainable and substantial reduction in loan concentration, or a material enhancement of the capital base could also move IDRs upward.

An unexpected weakening of CABEI's financial profile including weaker capitalization driven by excessive loan growth, or marked deterioration in asset quality could result in downward pressure on IDRs and National Ratings.

KEY ASSUMPTIONS

Fitch Ratings assumes that member countries, even if experiencing severe difficulties, will continue to honor CABEI's preferred creditor status and exempt its private-sector borrowers from any measures that may affect the transfer and/or convertibility of their debt service payments.

Fitch has affirmed CABEI's ratings as follows:

International scale
--Long-term IDR at 'A'; Outlook Stable;
--Short-term IDR at 'F1';
--Senior unsecured debt at 'A'.

National scale
--Long-term national rating in El Salvador at 'AAA(slv)'; Outlook Stable;
--Short-term national rating in El Salvador at 'F1+(slv)';
--Senior unsecured long-term debt in El Salvador at 'AAA(slv)';
--Long-term national rating in Honduras at 'AAA(hnd)'; Outlook Stable;
--Short-term national rating in Honduras at 'F1+(hnd)';
--Long-term national rating in Costa Rica at 'AAA(cri)'; Outlook Stable;
--Short-term national rating in Costa Rica at 'F1+(cri)';
--Senior unsecured long-term debt in Costa Rica at 'AAA(cri)';
--Senior unsecured short-term debt in Costa Rica at 'F1+(cri)';
--Senior unsecured long-term debt in Mexico at 'AAA(mex)';
--Senior unsecured long-term debt in Panama at 'AAA(pan)';
--Senior unsecured long-term debt in Thailand at 'AAA(tha)'.