Fitch Affirms Banco de la Produccion S.A. y Subsidiarias' IDR at 'B'; Outlook Stable
KEY RATING DRIVERS
KEY RATING DRIVERS - IDR and VR
Produbanco's VR drives its long-term IDR. Ecuador's challenging operating environment with low expected growth and rising political risks along with a significant regulatory uncertainty have a high influence on the bank's VR. Produbanco's moderate capital position also has a high influence on its VR. The rating also factors in the bank's ample liquidity, good asset quality and pressured profitability.
Produbanco's Fitch core capital (FCC) ratio, of 10.82% at end June, compares below similarly rated peers. The FCC ratio decreased after the merge with Promerica, pressured by higher risk weighted assets and the goodwill created by the transaction. In Fitch's view, the ratio will remain stable as year-end figures should benefit from a slowdown in lending, despite the expected decrease in profits.
Lower profitability was driven by the bank's transition period, after the merge with Banco Promerica and the sale of its subsidiary in Panama. As of June 2015, Produbanco's ROAA decreased and compared below market average due to increased operating costs, higher loan loss impairment charges and lower income diversification. In Fitch's opinion, profitability metrics will continue under pressure in 2015 given Ecuador's economic conditions.
Produbanco's liquidity is ample and compares well with banks in similarly rated countries. Ecuador's conservative liquid assets requirements exceed those of similarly rated countries. Produbanco's investment practices benefit lower risk exposure and high liquidity.
The bank maintains adequate risk controls and conservative underwriting standards. Fitch forecasts some deterioration in non-performing loans ratios as economic growth weakens. However, asset quality will continue comparing well with industry averages, underpinned by the low delinquency levels of Produbanco's seasoned corporate loan portfolio.
The Stable Outlook reflects limited upside potential of Produbanco's VR under current economic conditions
SUPPORT RATING AND SUPPORT RATING FLOOR
The bank's Support Rating of 'NF' and Support Rating Floor of '5' reflect Fitch's belief that 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
IDR and VR
Produbanco's VR and IDRs have limited upside potential under current economic conditions. A downgrade of the bank's VR and IDRs would reflect significant reduction in Produbanco's internal capital generation that leads to a decrease in the bank's FCC metrics consistently below 9%.
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:
--Foreign currency long-term IDR at 'B'; Outlook Stable;
--Foreign currency short-term IDR at 'B';
--Viability rating at 'b';
--Support rating at '5';
--Support Floor at 'NF'.
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