OREANDA-NEWS. Fitch Ratings has affirmed the Long-and Short-term Issuer Default Ratings (IDRs) of Banesco USA (BNSC) at 'B+ and 'B', respectively. The Rating Outlook is Stable. A complete list of ratings follows at the end of this release.

KEY RATING DRIVERS
IDRS AND VIABILITY RATINGS

BNSC's IDRs reflect the company's geographic and product concentration, mainly in South Florida commercial real estate (CRE), and a loan portfolio profile that includes exposure to economic conditions in Latin America, primarily Venezuela. Further, BNSC's ratings reflect a very limited franchise in South Florida, and historically weak earnings metrics which have been negatively affected by costs associated with remediating its ongoing consent order with the FDIC stemming from BSA/AML deficiencies. Fitch expects successful remediation of the consent order without material fines and/or negative findings by regulators. Fitch considers BNSC's asset quality profile to be in line with its rating level. The company's ratings are supported by its adequate capital levels and good liquidity profile.

Although BNSC is affiliated with the Banesco Group and shares common ownership, BNSC does not incorporate a holding company structure and there is no direct ownership linkage to Banesco Banco Universal (BBU) in Venezuela. BNSC benefits from the 'Banesco' brand, its strong recognition in Latin America, and BBU's market leading position in Venezuela. BBU is Venezuela's largest privately held bank in terms of deposit and assets. In Fitch's opinion, contagion risk from BBU, which shares the same brand, is limited at this time.

Fitch notes that there may be risks to BNSC's Venezuelan depositors seeking other U.S.-based banking institutions in which to deposit their monies in the event there is concern regarding BNSC or the Banesco Group. However, to date, BNSC has actually benefited from its association with the Banesco brand, despite volatility in Venezuela, as demonstrated by its relatively stable deposit base. Should a change in depositor behavior become evident, BNSC's ratings may be impacted.

The company's good liquidity profile is driven by its large core deposit base, and benefits from a high volume of international deposits which make up 54% of total deposits. The majority of international funding is sourced from Venezuelan depositors who have turned to U.S. banks as a safe haven. These deposits typically have a very low attrition rate, limited rate sensitivity and provide a stable source of low-cost funding. In an effort to reduce reliance on Venezuelan funding, management has been working to grow domestic deposits in conjunction with loan growth. Fitch views the diversification of funding sources positively. Furthermore, BNSC maintains a high level of cash and liquid assets to support immediate liquidity needs.

In Fitch's view, the lack of access to external capital is considered a rating constraint. That said, BNSC's capitalization is appropriate for the risk profile of the institution. As of Sept. 30, 2015, the company's Fitch core capital/risk weighted assets ratio was 11.85% and its tangible common equity/tangible assets ratio was 9.30%. Although Fitch considers the capital base sufficient to support risks within the business mix, further balance sheet growth coupled with limited profitability may impact capital ratios.

BNSC's earnings measures tend to be weak when compared to other community banks and are considered a rating constraint. Fitch attributes this to historically higher efficiency ratios, even excluding costs associated with remediating the FDIC consent order, which have been partially offset by stronger margins. Net interest margins, however, have been historically supported by accretion income associated with credit impaired loans purchased from Security Bank as well as deposit cost advantages associated with its low-cost international deposits. Prospectively, we expect earnings to be constrained as the company focuses on diversifying its deposit mix by adding more domestically-sourced deposits, which are higher cost, and as accretion income declines. Further, earnings may be hindered given the ongoing focus on remediating its consent order, coupled with still-low interest rates.

Fitch considers BNSC's asset quality profile to be reflective of the rating level. The company has exhibited strong growth in recent years, particularly in CRE and commercial credits. Moreover, Fitch also considers BNSC to be product and geographically concentrated, as CRE represents over 400% of capital and is concentrated in the Miami-Dade MSA. Additional credit risk considerations include the effects of sovereign risk in the international loan portfolio, which makes up approximately 14% of total loans. Over half of the international portfolio consists of exposure to borrowers in Venezuela and is mainly secured by residential, and, to a lesser extent, CRE properties in South Florida as well as cash deposits. Although economic instability remains a concern in Venezuela, credit risk is offset by the strong level of collateral protection and the company's prudent non-resident credit underwriting standards. Although credit performance has been solid over the past several quarters, and has dramatically improved since the financial crisis, asset quality indicators may be benefitting from recent rapid loan portfolio growth.

SUPPORT RATING AND SUPPORT RATING FLOOR
BNSC has a Support Rating of '5' and Support Rating Floor of 'NF'. In Fitch's view, BNSC is not systemically important and, therefore, the probability of support is unlikely. The IDRs and VRs do not incorporate any support. Historically, BNSC's principal shareholders have demonstrated a willingness to provide capital; however, Fitch's rating analysis does not assume capital support from the shareholders.

LONG- AND SHORT-TERM DEPOSIT RATINGS
BNSC's uninsured deposit ratings are rated one-notch higher than the company's IDR because U.S. uninsured deposits benefit from depositor preference. U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default.

RATING SENSITIVITIES
IDRS AND VRS
Sustained and improved profitability combined with the maintenance of strong credit performance would be considered positive rating drivers. Given BNSC's ties to the Banesco Group and in particular the Venezuelan deposit base, material positive rating momentum may only occur following stabilization of the operating environment in Venezuela.

Ratings could be negatively affected if BNSC experienced a declining trend in its depositor base and/or if unexpected adverse events affect Banesco Group. Fitch notes that there may be risks to BNSC's Venezuelan deposit base such as depositors seeking other U.S.-based banking institutions in which to deposit their monies given concerns with BBU and/or depositors withdrawing their funds to make routine operational purchases as inflation rises further in Venezuela.

Banesco's recent growth in commercial and industrial (C&I) loans has outpaced peers. Credit performance has remained stable to date. However, should credit losses deteriorate materially, thereby impacting capital, negative rating action could ensue.

SUPPORT RATING AND SUPPORT RATING FLOOR
BNSC's Support Rating and Support Rating Floor are sensitive to Fitch's assumption around capacity to procure extraordinary support in case of need. Since BNSC's Support and Support Rating Floors are '5' and 'NF', respectively, there is limited likelihood that these ratings will change over the foreseeable future.

LONG- AND SHORT-TERM DEPOSIT RATINGS
The ratings of long- and short-term deposits issued by BNSC are primarily sensitive to any change in BNSC's long- and short-term IDRs.

PROFILE
Banesco USA was established in 2006 by the principal shareholders of the Banesco Group and provides traditional banking services, primarily real estate financing, to retail clients as well as to small-to-medium-sized companies. Services are offered via a total of six branches with three throughout Miami-Dade County, two in Broward County and one in San Juan, Puerto Rico. Banesco USA is based in Coral Gables, FL.

Fitch has affirmed the following:

Banesco USA (BNSC)
--Long-term IDR at 'B+'; Outlook Stable;
--Short-term IDR at 'B';
--Long-term deposits at 'BB-';
--Short-term deposits at 'B';
--Viability Rating at 'b+';
--Support at '5';
--Support Floor at 'NF'.