Fitch Ratings has affirmed Banco Interamericano de Finanzas S.A.'s (BanBif) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB+', and Viability Rating (VR) at 'bb+'.

The Rating Outlook for the IDRs is Stable.

Rating Withdrawals

Fitch has also withdrawn BanBif's Support Rating and Support Rating Floor, as they are no longer relevant to the agency's coverage following the publication of updated Bank Rating Criteria on Nov. 12, 2021. In line with the updated criteria, Fitch has assigned a Government Support Rating (GSR) of 'bb-'.

Key Rating Drivers

BanBif's IDRs are driven by its 'bb+' VR. The bank's VR is in line with the implied VR, which is underpinned by the operating environment (OE), the more limited company profile and tight capital metrics. As the fifth-largest Peruvian bank, BanBif has a mid-size franchise, and has gradually consolidated and strengthened its competitive position in the second-tier market. However, the bank remains small and relatively less diversified compared with the four largest Peruvian banks. The bank's loan and deposit market shares reached around 4% at December 2021.

Key Rating Driver 2

Fitch believes the credit profile is sensitive to a material deterioration in the local OE or a negative sovereign rating action. Pressure in the OE include a slow recovery of the GDP due greater political uncertainty and the challenging investment and business environment.

Key Rating Driver 3

BanBif's Fitch Core Capital (FCC)/risk weighted assets (RWA) ratio of 8.6% at December 2021 remains under pressure due to its limited capital size and internal capital generation. Fitch believes that BanBif's low capital ratios are offset by its ample loan loss reserves, good asset quality and risk management. Fitch expects these capital metrics to remain the weakest link for the rating, exacerbated by the political uncertainty on the OE. However, the entity consistently monitors the minimum level it must sustain above 8%, which is Fitch's trigger to remain commensurate to the rating.

Key Rating Driver 4

BanBif's corporate loan focus and relatively conservative risk appetite underpin its asset quality performance, which is supported by a high level of guarantees and leasing contracts. BanBif's 90 days past due loans of 2.9% at YE 2021 remains relatively stable, with its four-year average and the reserve coverage increased to mitigate against the bank's pandemic exposure. Although impairments grew 13% during 2021, gross loan growth in less riskier segments allow it to control asset quality.

Forbearance programs decreased to 5%, in line with similar Peruvian banks. Fitch expects some loan impairment pressure and charge-off during the first half of 2022, which should partially reduce the relatively high LLRs coverage of 2.1x. Top 20 concentrations is high at 2.3x the FCC. Normalized performance would depend on a change in the economic environment for the rest of 2022. However, PDL levels should remain below the banking system average.

Key Rating Driver 5

BanBif's profitability is low relative to peers due to the bank's corporate focus and limited size. Operating profitability for 2021 reflect low interest margins, cost control and lower provisions due to the pandemic. Significant reduction in interest rates due to pandemic, and still higher loan impairments charges narrowed BanBif's operating profitability to RWA to 1.0% during 2021, above the 0.6% at YE 2020, but still below an average of 1.4% (2016-2019).

Fitch believes the bank's efforts to increase profitability through its consistent strategy to exploit its second-tier position and improve its value offer, will benefit profitability recovery. However, Fitch expects profitability improvement will return to its historical average of 1.5%-2%, contingent on economic recovery, increased investor confidence and limited pressure on funding cost.

Key Rating Driver 6

BanBif has a relatively diversified funding structure and is reliant on deposits. Dependence on term deposits remains high, but the bank has made a relevant effort toward growing low cost and stable funding. BanBif's loans/deposits ratio was 107% at YE 2021 due to deposits reduction offset by credit lines. BanBif consistently maintains a liquidity coverage ratio above 100% in both U.S. dollars and Peruvian sols. Fitch believes BanBif's liquidity will remain adequate, supported on adequate asset and liability management and high liquidity assets.

Key Rating Driver 7

GOVERNMENT SUPPORT (GS) RATING

The bank's 'bb-' GS Rating reflects its mid-size franchise and lower systemic importance in the context of the investment-grade Peruvian operating environment. As the fifth-largest Peruvian bank, Fitch believes the probability of support from the government would be moderate if required.

Rating Sensitivities

Factors that could, individually or collectively, lead to negative rating action/downgrade:

BanBif's IDRs are sensitive to a material deterioration in the local operating environment or a negative sovereign rating action;

The ratings could be downgraded if the FCC ratio falls consistently below 8%, especially considering the tighter internal capital generation of the bank (i.e. retained earnings);

The GS could be downgraded if the bank loses material market share in terms of loans and customer deposits.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Positive rating actions could occur if BanBif demonstrates a capacity to sustain improvements in earnings and asset quality metrics, while also maintaining an FCC ratio greater than 10% amid the relatively faster loan growth that the bank could have within a better OE.

GOVERNMENT SUPPORT RATING

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Upside potential for the GS is limited and can only occur over time with material growth of the bank's systemic importance.

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 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

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, due to either 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.

RATING ACTIONS

Entity / Debt

Rating

Prior

Banco Interamericano de Finanzas S.A.

LT IDR

BB+

Affirmed

BB+

ST IDR

B

Affirmed

B

LC LT IDR

BB+

Affirmed

BB+

LC ST IDR

B

Affirmed

B

Viability

bb+

Affirmed

bb+

Support

WD

Withdrawn

3

Support Floor

WD

Withdrawn

BB-

Government Support

bb-

New Rating

Page

of 1

VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

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