Fitch Ratings has affirmed Banco BTG Pactual Chile's (BTG Chile) 'bbb-' Viability Rating (VR) and 'BBB-' Long-Term (LT) Foreign and Local Currency Issuer Default Ratings (IDRs).
Fitch has also affirmed the bank's National Long-Term Rating at 'AA-(cl)'. The Rating Outlook on the Long-Term ratings is Stable.
Key Rating Drivers
VR, IDRs and National Ratings
Long-Term Issuer Default Rating Based on Viability Rating: Banco BTG Pactual Chile's (BTG Chile's) Long-Term (LT) Issuer Default Rating (IDR) and Long-Term National rating are driven by its intrinsic creditworthiness, as reflected in its 'bbb-' Viability Rating (VR). Fitch's assessment of the bank's business profile, currently 'bbb-', has a stronger impact on the assigned VR than the weighting would suggest (20%). Although the bank is part of a larger financial group, its franchise remains small, albeit growing, counterbalancing its solid financial profile that is currently captured by its 'bbb' category Key Rating Driver scores.
Business Profile High Influence: BTG Chile has a small franchise as a bank in
Good Asset Quality Despite Portfolio's Concentrations: The bank's small size and its business model focused on corporate and large companies results in high portfolio concentration as the 20 largest debtors represented about 1.7x common equity and 43% of total loans as of
Solid Financial Profile: BTG Chile's financial profile analysis incorporates the blended approach of the bank and non-bank criteria, specifically for traditional investment managers, since this business line is one of the bank's main revenue sources, which mostly originated from net fees (46% average of total operating income for 2019-2022). In addition, the EBITDA/fee revenue ratio was a solid 202% average over the past four years (2019-2022). The bank's profitability has been growing rapidly since 2017 with an average operating profit/risk-weighted assets (RWA) ratio of 2.8% for the last four years and it is expected to continue to surpass 2% in the near future. BTG Chile has a more solid and diversified income mix compared to other niche and small banks in
Sound Capital Ratios: Fitch expects BTG Chile's strong Common Equity Tier 1 (CET1) to RWA ratio (17.5% at
Independent, Concentrated Funding: The bank in
The bank's liquidity coverage ratio (LCR) stood at 208% and its net stable funding ratio (NSFR) at 98% as of
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
VR, IDRs and National Ratings
Downward pressure on BTG Chile's ratings could stem from a higher risk appetite that results in significantly weaker asset quality, which could affect the bank's profitability and, ultimately, its capitalization, with a sustained decline in the bank's CET1 ratio below 13% or its operating profit/RWA ratio below 2%;
National Ratings are sensitive to a weakening of creditworthiness relative to other Chilean issuers.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
VR, IDRs and National Ratings:
A potential upgrade of the bank's ratings is limited given its still relatively small domestic business profile;
BTG Chile's VR and IDRs are also limited as the ratings are at the typical maximum three-notch uplift from its parent's IDRs as per Fitch's criteria.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Debt Ratings: Fitch rates BTG Chile's senior unsecured bonds at the same level as the bank's national long-term scale ratings of 'AA-(cl)', as the likelihood of default of the senior debt is the same as that of the issuer. Fitch rates BTG Chile's National-scale subordinated debt 'A(cl)', two-notches below its national long-term issuer rating. The two-notch difference factors loss severity due to its subordinated nature (after default), coupled with no additional notching for non-performance risk given the subordinated debt's gone concern feature (triggered after the point of nonviability).
Support Rating: The 'b+' Shareholder Support Rating (SSR) reflects Fitch's view that BTG Chile's ultimate parent,
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade
Senior and subordinated debt ratings would generally move together with the bank's long-term national ratings. The subordinated debt would remain two-notches below the bank's long-term national ratings;
Reductions in BTG Chile's SSR is subject to the potential downgrade of the ultimate parent. In addition, the bank's SSR could be affected by a change in Fitch's opinion on its parent's propensity to provide support, which appears unlikely in the medium term.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Senior and subordinated debt ratings would generally move together with the bank's long-term national ratings. The subordinated debt would remain two-notches below the bank's national long-term rating.
A potential rating upgrade in the bank's SSR is unlikely considering the current Stable Outlook on the bank's ultimate parent,
VR ADJUSTMENTS
The VR of 'bbb-' has been assigned below the 'bbb' implied VR due to the following adjustment reasons: Business Profile (negative).
The Business Profile score of 'bbb-' has been assigned above the 'bb' category implied score due to the following adjustment reasons: Group benefits and risks (positive) and Strategy and execution (positive).
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
Banco BTG Pactual Chile's ratings are linked to those of its ultimate parent,
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
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