Fitch Ratings has upgraded
The upgrade reflects Hipotecario's improvements in the bank's asset quality, funding mix and profitability during the past six quarters and the lower refinancing risk given the significant reduction of its capital markets debt.
Fitch has withdrawn the banks Support Rating of '5' and the Support Floor of 'No Floor' (NF) and assigned a new Government Support Rating of 'No Support' ('ns') as these ratings are no longer relevant to the agency's coverage.
Key Rating Drivers
Intrinsic Creditworthiness: Hipotecario's IDRs are based on the bank's intrinsic creditworthiness as determined by its VR. The bank's VR is one notch below its implied VR due to its comparatively weaker funding and liquidity profile. Despite improving trends in terms of the diversification of the bank's funding sources, concentration remains high when compared to international peers.
Challenging Operating Environment: Hipotecario's implied Viability Rating (VR) and IDRs are constrained by
Satisfactory Asset Quality: During the first half of 2022 the bank's loan impairment ratio saw a significant improvement, decreasing to a low of 4.5% as of
Recovering Profitability: Profitability metrics strongly improved as a result of earnings from its securities portfolio and benefits from cost control initiatives and lower credit costs. The contained operating expenses have offset lower revenues from the smaller credit portfolio and lower fee income resulting from government regulation intended to support the economy. The benchmark operating profit to risk-weighted asset ratio sharply improved from YE 2021 when it was negative to a positive 8.5% at 1H2022.
Stronger Capitalization Metrics: The bank posts satisfactory capitalization levels with a CET 1 ratio of 18.7% and total capital ratio of 18.9%, in line with its peers and well-exceeds the regulatory minimums as of
Greater Funding Diversification: Hipotecario has made significant progress towards diversifying its funding base from predominantly funding by bonds to customer deposits as the main source of funding. Deposits now represent 84% of its non-equity funding. The bank's loan to deposit ratio is very low compared to peers at only 29.5% at 1H22. Deposit concentration has improved, but still high, as the top 10 depositors accounted for 39% of total deposits as of
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The IDRs and VRs would be pressured by a downgrade of
Any policy announcements or deterioration in the local operating environment detrimental to the bank's ability to service obligations would be negative for creditworthiness. This includes a tightening of capital controls, to the extent they restrict debt payments.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Maintaining the improvement in the bank's funding profile and asset quality in the context of a sovereign upgrade or a better operating environment would be positive for the bank's ratings.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
The rating of Hipotecario's senior medium-term notes is aligned with the bank's Long-Term Foreign Currency IDR. Fitch considers the Long-Term Foreign Currency IDR an appropriate anchor for this issue rating, given the transfer and convertibility risk associated with settlement in foreign currency, notwithstanding the issuer will not incur material currency risk. The notes' Recovery Rating of 'RR4' reflects the average expected recovery in case of bank liquidation. The bank has recently repaid a portion of its senior debt and has access to sufficient foreign currency to repay the upcoming
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Any change, either positive or negative, to Hipotecario's IDR could result in a similar change to the senior debt rating.
VR ADJUSTMENTS
The implied 'ccc' Viability Rating has been adjusted to 'ccc-' due to operating environment/sovereign rating constraint (negative);
The Operating Environment score of 'ccc' has been assigned below the implied score of 'b' due to the following adjustment reason: Sovereign Rating (negative);
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
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.
(C) 2022 Electronic News Publishing, source