Fitch Ratings has affirmed
KEY RATING DRIVERS
The bank's ratings are still highly influenced by the operating environment, which remains very challenging. Asset quality continues to be pressured by the steep recession, which has been exacerbated by a long lockdown due to the coronavirus pandemic. Similarly, profitability has been pressured by very low loan growth, rising costs due to continued high inflation, and increasing credit costs.
The ratings also consider the bank's funding profile and the recently modified proposed debt exchange, moderate franchise, adequate capitalization and liquidity, and the deterioration of its asset quality indicators. Market volatility, low loan growth, higher credit costs and rising administrative expenses due to high inflation will continue to weigh on Hipotecario's financial profile.
Fitch believes that the recently announced exchange offer, including the latest modification which combines both offers to a cash up front payment of
The bank's profitability has been under pressure since reaching its recent peak in 2018, reflecting the weak operating environment with low credit growth opportunities. In this scenario, the bank's revenues depend on its central bank securities holdings and non-interest revenues. In 2020, with inflation adjusted figures, the bank reported operating profit /risk weighted assets of 0.78%, a reduction compared to 1.2% in
Asset quality metrics continues to be pressured by the challenging economic scenario, with the bank's NPL ratio reaching 12.3% in
The bank's current capitalization levels are commensurate with its rating level with CET 1 ratio of 16.4% as of
SENIOR DEBT
The 'CC'/'RR4' rating on Hipotecario's medium-term notes reflects that these are senior unsecured obligations ranking pari passu with other senior unsecured indebtedness, and therefore, aligned with the bank's Foreign Currency (FC) IDR of 'CC'.
The notes are denominated in USD. Fitch considers the bank's FC IDR as the appropriate anchor for this issue rating, given the transfer and convertibility risk associated with settlement in foreign currency notwithstanding that the issuer will not incur material currency risk. The notes' Recovery Rating of 'RR4' reflects the average expected recovery in case of bank liquidation.
SUPPORT RATING AND SUPPORT RATING FLOOR
The Support Rating of '5' and the Support Rating Floor of 'NF' reflect that, although possible, external support for
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The IDRs and VR of
Factors that could, individually or collectively, lead to negative rating action/downgrade:
An unsuccessful debt exchange, which would result in increased refinancing risks, would put pressure on the bank's IDRs and VR.
Any policy announcements or a deterioration in the local operating environment that would be detrimental to the bank's ability to service its obligations, including a tightening of capital controls to the extent that they restrict debt payments, would be negative for creditworthiness.
SUPPORT RATING AND SUPPORT RATING FLOOR
Changes in the SRs and SRFs of
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.
ESG CONSIDERATIONS
The highest level of ESG credit relevance, if present, is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity(ies), either due to their nature or to the way in which they are being managed by the entity(ies). For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
RATING ACTIONS
ENTITY/DEBT RATING RECOVERY PRIOR
Banco Hipotecario S.A. LT IDR CC Affirmed CC
ST IDR C Affirmed C
LC LT IDR CC Affirmed CC
LC ST IDR C Affirmed C
Viability cc Affirmed cc
Support 5 Affirmed 5
Support Floor NF Affirmed NF
senior unsecured
LT CC Affirmed RR4 CC
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
(C) 2020 Electronic News Publishing, source