Banks

Universal Commercial Banks

Peru

Banco BBVA Peru

Update

Ratings

Foreign Currency

Long-Term IDR

BBB

Short-Term IDR

F2

Key Rating Drivers

Shareholder Support Rating: After the change in the sovereign Rating Outlook and the consequent revision of the OE, Banco BBVA Peru's (BBVA Peru)'s IDRs became support-driven and are rated one notch below its parent, Banco Bilbao Vizcaya Argentaria (BBVA; BBB+/Stable), given Fitch's "higher of" approach. As a result, the Rating Outlook on BBVA Peru's 'BBB' LT IDRs remains Stable, in line with its parent's Rating Outlooks. The Peruvian operations are part of BBVA's presence in Latin America, and Fitch believes that BBVA PERU is of strategic importance to the BBVA Group's business dynamics, underpinning the bank's Shareholder Support Rating (SSR) of 'bbb'. Therefore, Fitch anticipates support from the parent should be forthcoming, if required.

South America is considered a key market for BBVA globally, becoming an important part of revenues. Peru is strategic for BBVA in Spain as it is the second largest bank in the country and the largest among foreign banks. BBVA S.A. owns 46.12% of BBVA PERU. A one-notch downgrade on the Peruvian sovereign´s ratings would not lead to a similar action on BBVA PERU's IDRs and its SSR and subordinated debt rating as they are not capped by the sovereign.

Viability Ratings: BBVA Peru's Viability Rating (VR) of 'bbb' is in line with the implied VR. The bank's robust business profile and sound financial profile support its VR. However, BBVA Peru's VR is constrained by Peru's (BBB/Negative) operating environment and Long-Term IDR, due to limited geographic diversification outside of Peru and material exposure to foreign currency.

BBVA Peru's strong position as Peru's second-largest bank, with market share of approximately 20% in loans and deposits, also influences its VR. BBVA Peru's VR reflects the company's good but slightly deteriorated asset quality and ample reserves, consistent profitability, and ample and diversified funding base.

Challenging Asset Quality: The bank's asset quality deterioration in 2021 and 1H22 was due to reduced growth and the impact on Reactiva loans (a government program intended to support companies impacted by the pandemic) after the conclusion of the grace period, which represented 12% of the total loan portfolio at June 2022. As of 1H22, BBVA Peru's 90-days NPL ratio was 3.7%, which was impacted by the maturity of loans related to the Reactiva program. Fitch expects this ratio to improve as the guarantees from the Reactiva program are collected. Further improvement can be delayed until 2023 as risks resulting from political uncertainty weigh on economic recovery.

Sufficient Provisions: Reserves remain high due to voluntary provisions, and cover 1.7x 90-day PDLs at 2Q22, close to the loan loss reserve (LLR) coverage from 2017-2019. Fitch considers this adequate, given historical losses and the expected credit deterioration under relief programs.

Improving Financial Performance: Lower NIMs and slow loan growth could impact the bank's profitability ratios, which returned to pre-pandemic levels by 2Q22. As of 1H22, the operating profit-to-RWA ratio was 3.0%. Noninterest revenues continue to represent a sizable contribution to total revenues. In general, Fitch expects BBVA Peru's financial ratios to remain adequate for its rating category, even amid expectations for slight deterioration. Nevertheless, higher interest rates have a positive impact on BBVA Peru, along with double-digit loan growth in retail and SME. Also, excluding Reactiva, loans have increased by 12% amid lower growth in corporate and mortgage loans. The bank has decided not to enter into competition that could weigh on margins.

Sufficient Capitalization: Capital metrics are weak relative to similarly rated commercial FirmadouniversalDigitalmentebanks withpor:'bbb' operating environments and regional peers, although capitalization

RAUL ERNESTO ROCA KOHLER

Fecha: 06/12/2022 03:30:58 p.m.

Local Currency

Long-Term IDR

BBB

Short-Term IDR

F2

Viability Rating

bbb

Shareholder Support Rating

bbb

National

Sovereign Risk

Long-TermForeign-Currency

IDR

BBB

Long-TermLocal-Currency IDR

BBB

Country Ceiling

BBB+

Outlooks

Long-TermForeign-Currency

IDR

Stable

Long-TermLocal-Currency

IDR

Stable

Sovereign Long-Term Foreign-

Currency IDR

Negative

Sovereign Long-Term Local-

Currency IDR

Negative

Applicable Criteria

Bank Rating Criteria (September 2022)

Related Research

Fitch Takes Actions on Peruvian FIs following Sovereign and OE Outlook Revision to Negative (October 2022)

Fitch Revises Peru's Outlook to Negative from Stable; Affirms 'BBB' (October 2022)

Fitch Affirms BBVA at 'BBB+'; Outlook Stable (May 2022)

Financial Data

Banco BBVA Peru

30 Jun 2022

31 Dec 2021

Total Assets

26.327,9

25.470,1

(USD Mil.)

Total Assets

100.572,6

101.495,8

(PEN Mil.)

Total Equity

10.282,8

10.168,7

(PEN Mil.)

Analysts

Aguilar, Ricardo

+52 81 4161 7086 ricardo.aguilar@fitchratings.com

Update │ December 05, 2022Marquez, Andres fitchratings.com 1

+57 601 241 3254 andres.marquez@fitchratings.com

Banks

Universal Commercial Banks

Peru

is enhanced by ordinary support from its ultimate parent. The June 2022 ratios were above regulatory requirements, with a regulatory capital ratio of 14.4%. At the same time BBVA Peru's Fitch Core Capital ratio (FCC) was at a relatively tight 11.39%, below YE 2021.

The relatively limited FCC is partially offset by BBVA Peru's still-adequate LLRs, which create additional cushion for risk absorption, as they exceed 90-day PDLs in an amount equivalent to 20% of the FCC at 2Q 2022. Fitch also assesses ordinary support from the parent bank in capitalization metrics. A conservative dividends payout ratio policy should sustain capital conservation and support loan growth for the remainder of 2022 and 2023.

Ample and Diversified Funding Base: Funding is stable and diversified, with wider access to domestic and foreign capital markets and adequate matching in currency and tenure. Capital market funding provides the bank with long-term funding and lower associated costs, which improves asset/liability matching. Deposits returned to historical levels after pension fund withdrawals and lower client investment and expenses. As a result, loans/deposits trends toward prepandemic levels, at 117.0% as of June 2022, from the 2017-2019 average of 110.3%.

Debt Ratings: BBVA Peru's senior debt was affirmed at the same level as its LT IDR, as the notes' likelihood of default is the same as the entity's. At the same time, the bank's subordinated debt was affirmed two notches below what Fitch considers the appropriate anchor rating, the bank's own support-driven LT FC IDR.

Rating Sensitivities

Factors that Could, Individually or Collectively, Lead to Negative Rating

Action/Downgrade

  • BBVA PERU's IDR and Outlook will remain one notch below its parent, BBVA S.A.'s IDR or equivalent to its VR, whichever is higher, but subject to sovereign rating and Country Ceiling considerations.
  • A negative rating action on BBVA SA would result in a similar action on BBVA PERU.
  • Any negative rating action on the sovereign or in Fitch's OE assessment would also lead to a similar action on BBVA PERU's VR.
  • BBVA PERU's VR could be negatively affected if the bank's asset quality deteriorates significantly causing a sustained decline of the bank's operating performance and capital cushions (a sustained decline in the bank's FCC/adjusted RWA ratio to less than 10% assuming the maintenance of excess reserves and non-core loss absorbing capital or operating profit to RWA below 2.5%).
  • BBVA Peru's senior debt ratings would move in line with its Long-Term IDR.
  • BBVA Peru's subordinated debt ratings would move in line with its anchor rating, the banks' support-driven LT FC IDRs.
  • BBVA Peru's SSR would be affected by a negative change in BBVA's ability or willingness to support the bank.

Factors that Could, Individually or Collectively, Lead to Positive Rating

Action/Upgrade

  • BBVA Peru's IDR will likely remain at the level determined by its own VR, or one notch below the parent's IDR subject to sovereign rating and Country Ceiling considerations, whichever is higher. Upside potential for the VR is limited in the near future, as reflected by the OE assessment and Outlook.
  • BBVA Peru's senior debt ratings would move in line with its Long-Term IDR.
  • BBVA Peru's subordinated debt ratings would move in line with its anchor rating, the banks' support-driven LT FC IDRs.
  • BBVA Peru's SSR would be affected by a positive change in BBVA's ability or willingness to provide support.

Banco BBVA Peru

Update │ December 05, 2022

fitchratings.com

2

Banks

Universal Commercial Banks

Peru

Issuer Ratings (Including Main Issuing Entities)

Rating Level

Rating

Long-TermForeign-Currency IDR

BBB

Short-TermForeign-Currency IDR

F2

Long-TermLocal-Currency IDR

BBB

Short-TermLocal-Currency IDR

F2

Viability Rating

bbb

Shareholder Support Rating

bbb

Outlook/Watch

Stable

Source: Fitch Ratings.

Debt Rating Classes

Rating Level

Rating

Senior unsecured: Long-Term

BBB

Subordinated: Long-Term

BB+

Source: Fitch Ratings.

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Banco BBVA Peru

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D or RD

The Key Rating Driver (KRD) weightings used to determine the implied VR are shown as percentages at the top. In cases where the implied VR is adjusted upwards or downwards to arrive at the VR, the KRD associated with the adjustment reason is highlighted in red. The shaded areas indicate the benchmark-implied scores for each KRD.

Banco BBVA Peru

Update │ December 05, 2022

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Banks

Universal Commercial Banks

Peru

VR - Adjustments to Key Rating Drivers

  • The OE score has been assigned above the implied score due to the following adjustment reason: Sovereign Rating (positive);
  • The Capitalization and Leverage score has been assigned above the implied score due to the following adjustment reason: Capital Flexibility and Ordinary Support (positive).

Banco BBVA Peru

Update │ December 05, 2022

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Banks

Universal Commercial Banks

Peru

Significant Changes

Fitch revised the Rating Outlook on the sovereign's LT IDR to Negative as a deterioration in political stability and government effectiveness has increased downside risks to Peru's ratings. In the agency's view, weaker governance poses greater downside risks to investment and economic growth.

Fitch also revised the Outlook on the OE score to negative as a slowdown in economic and loan growth, an increase in borrowing costs and persistent political uncertainty are detracting from Peruvian banking sector activity. However, sustained capitalization, improving profitability and lower loan impairment charges provide sufficient resilience to face stress from political uncertainty and external shocks.

Banco BBVA Peru

Update │ December 05, 2022

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Banco BBVA Peru SA published this content on 06 December 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 06 December 2022 20:51:03 UTC.