OREANDA-NEWS. Fitch Ratings has affirmed Banco Nacional de Panama's (Banconal) long-term Issuer Default Rating (IDR) at 'BBB' following a peer review of Panama's largest banks. The Rating Outlook is Stable. At the same time, the bank's viability rating (VR) was affirmed at 'bbb-'. See the full list of rating actions at the end of this release.

KEY RATING DRIVERS

IDRS, NATIONAL RATINGS, SUPPORT FLOOR AND SUPPORT RATING FLOOR
The ratings reflect the potential support the bank would receive from its owner, the Republic of Panama. Banconal's IDRs are aligned with those of the sovereign while the Support Rating Floor (SRF) and Support Rating (SR) reflect a state guarantee for its debt. In Fitch's view, the Panamanian government has a vested interest in providing timely support to Banconal as it is considered a policy bank that plays an important role as the government's financial agent.

The Stable Outlook reflects Fitch's expectation that the issuer's long-term IDR will remain unchanged over the rating horizon.

VR
The bank's VR, which measures its intrinsic creditworthiness, is one notch below the long-term IDR. Banconal's VR is highly influenced by the company profile and its low risk appetite, evidenced by its conservative asset allocation. Unlike its local peers, Banconal's balance sheet structure is dominated by bank deposits and securities, which consistently represent the main asset class (63% as of June 2015). Bank deposits are well diversified and largely allocated to global financial institutions while the securities portfolio comprises mainly investment-grade bonds.

Banconal's asset quality is sound and improved consistently in previous years underpinned by a favorable economic environment coupled with enhanced credit risk management. As of June 2015, past-due loans as a percentage of the total portfolio increased slightly but remained below 1% for fourth consecutive year. Non-performing loan (NPL) ratios may deteriorate somewhat in the foreseeable future, as is expected to occur in most banks operating in Panama. Nevertheless, Fitch has no significant concerns in this regard as Banconal's ratings should not be under pressure if such moderate deterioration materializes.

The bank's role as state treasurer shapes its funding structure, which consists exclusively of deposits. Government-related deposits usually account for more than 75% of total funding. The high concentration in the largest depositors is unlikely to change but is not a relevant source of risk, since, as legal persons under public law, state-owned companies and municipalities are required to maintain all banks accounts with Banconal.

Though the bank's capitalization is on a declining trend, it is still deemed as adequate. Fitch Core Capital (FCC) ratio declined from more than 20% due to high asset growth, in contrast to the moderate profitability and low internal capital generation. Banconal's board of directors agreed to maintain capital adequacy at around 15%, and to meet this target, credit growth is expected to remain in the single digits.

RATING SENSITIVITIES
IDRS, NATIONAL RATINGS, SUPPORT FLOOR AND SUPPORT RATING FLOOR
The bank's ratings should move in line with Panama's sovereign ratings.

VR
In Fitch's view, VR upgrades are unlikely in the foreseeable future. Over the medium term, however, Banconal's VR could benefit from further diversification into business activities that complement its privileged position with government-related entities.

Conversely, potential VR downgrades could be driven by declining profitability levels (ROAA consistently below 1%) jeopardizing a sustainable internal capital generation rate. Downgrades of the VR could also come from changes in strategic objectives that introduce heightened risk appetite.

Fitch has affirmed the following ratings:

Banconal
--Long-term IDR at 'BBB'; Outlook Stable;
--Short-term IDR at 'F3';
--VR at 'bbb-';
--SRF at 'BBB';
--SR affirmed at '2';
--National long-term rating at 'AA+(pan)'; Outlook Stable;
--National short-term rating at 'F1+(pan)'.