OREANDA-NEWS. Following a peer review, Fitch Ratings has today affirmed Banco Occidental de Descuento, Banco Univeral C.A.'s (BOD) foreign and local currency Issuer Default Ratings (IDRs) at 'CCC'. No Rating Outlook is assigned at this rating level. See the full list of rating actions at the end of this release.

KEY RATING DRIVERS
IDRS, VR AND NATIONAL RATINGS
As with other emerging market commercial banks in highly speculative rating categories, the operating environment highly influences BOD's ratings. Like all Venezuelan banks, the sovereign's creditworthiness constrains BOD's ratings due to exposure to public sector (mostly sovereign) securities, as well as vulnerability to the government's policy choices and the country's economic performance. Venezuela's IDR is currently rated 'CCC' by Fitch. High inflation distorts the comparison of financial metrics with regional peers (Latin American commercial banks with a Viability Rating [VR] of 'b+' and below).

BOD's funding and liquidity also highly influences its credit profile. Given the bank's high level of liquid assets, the large negative mismatch between short-term assets and liabilities is manageable as long as domestic monetary market conditions remain liquid and any potential liberalization of capital controls is measured. Most liquid assets consist of cash and bank deposits (94% of total) and covered 27.5% of deposits and short-term funding as of Sept. 30, 2015. Fitch views a greater proportion of cash favorably, as public sector securities may be of limited liquidity in a stress scenario given the shallow domestic debt market.

Despite above-average asset growth, capitalization ratios have been relatively stable since 2013 and are now more in line with those of domestic peers (large private-sector commercial banks in Venezuela). Steady profitability and full amortization of goodwill in 2015 benefited the bank's capital metrics. Profitability is now more in line with domestic peers as the fiscal impact of changes to tax regulation has been lower and loan growth has been greater.

Higher margins and rapid nominal loan growth more than compensated for the heavy burden of inflation on expenses and increased credit costs during the first three quarters of 2015. As is the case with other Venezuelan banks, Fitch expects operating, credit and tax expenses to pressure profitability over the medium term.

BOD has the weakest loan quality indicators among domestic peers. A growing proportion of retail and compulsory loans also increases the vulnerability of the bank's loan quality indicators to the current economic crisis.

RATING SENSITIVITIES
IDRS, VR AND NATIONAL RATINGS
A downgrade of the sovereign's IDRs would result in a similar action on the IDRs and VRs of these banks, which are currently capped at the sovereign. Additional government intervention that pressures financial performance could negatively affect the bank's IDRs, VR and National ratings. While not Fitch's base case due to capital controls and high domestic market liquidity, a persistent decline in deposits would pressure ratings.

Upside potential to the bank's ratings in the near term is limited in light of the current economic crisis.

KEY RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR
The banks' Support Rating (SR) of '5' and Support Rating Floor (SRF) of 'NF' reflect Fitch's expectation of no support. Despite BOD's systemic importance, support cannot be relied upon given Venezuela's highly speculative rating and lack of a consistent policy on bank support.

Venezuela's propensity or ability to provide timely support is not likely to change given the sovereign's very low speculative-grade ratings. As such, the SR and SRF have no upgrade potential.

Fitch has affirmed BOD's ratings as follows:

--Long-term foreign and local currency IDRs at 'CCC';
--Short-term foreign and local currency ratings at 'C';
--Viability Rating at 'ccc';
--Support at '5';
--Support Floor at 'NF';
--Long-term national scale rating at 'BBB-(ven)';
--Short-term national scale rating at 'F3(ven)'.