Fitch Ratings has published Chilean-based
Fitch has also published Internacional's Shareholder Support Rating (SSR) of 'bbb' and Viability Rating (VR) of 'bbb-'. The Rating Outlook for the LT IDRs is Stable. At the same time, Fitch has assigned Internacional's proposed senior unsecured USD notes an expected rating of 'BBB(EXP)'.
These USD denominated notes will be issued for an amount of up to
Key Rating Drivers
SSR, IDRs and VR
Support Driven Ratings: Internacional's IDRs are driven by the potential support from its parent company,
Fitch also considered ILC's support record as a moderate importance factor in its SSR assessment. Internacional's parent has made a clear commitment to provide ordinary support for the bank's growth. ILC also made a commitment to the Chilean banking regulator to inject capital to the bank.
VR of 'bbb-' in Line with Implied VR: Internacional's assigned VR of 'bbb-' is in line with its implied VR and continues to reflect its position as a small- to medium sized bank in
Business Profile: Internacional's small, albeit growing, domestic franchise, is offset by its strong record of execution against stated goals over multiple periods, as well as its good access to customers and products as part of a larger group, ILC. As such, its assigned business profile score of 'bbb-' exceeds its implied 'bb' category score. In Fitch's view, Internacional's effective strategy along with a more tempered risk appetite, has allowed the bank to continue strengthening its capital and liquidity metrics, while containing further asset quality deterioration in a sluggish economic environment.
Controlled Asset Quality: The bank has successfully de-risked its loan portfolio while doubling its size over the past five years. Nevertheless, the downward trend in non-performing loans (NPLs) was followed by an increase in NPLs to 2.7% of gross loans in
Adequate Profitability: The bank's operating profit to risk weighted assets (RWA) ratio has been steadily above 1% for the last four years. Fitch's core metric increased to 1.9% at YE 2022 (from 1.7% at YE 2021), supported by a higher NIM and controlled loan impairment charges. Fitch expects further pressure on revenues and earnings due to the lower growth relative to historical trends, strong competition and higher credit costs over the medium term.
Stable Capital Metrics: Internacional'sCET1 ratio has been stable at around 9.74% in
Concentrated, Wholesale Funding: Like many small and midsize Chilean banks, and due to the nature of Internacional's core business, improving its funding structure remains one of the bank's biggest challenges, especially due to its reliance on wholesale funding and the small proportion of low- or no-cost demand deposits. The bank's loans/deposits ratio at 144% as of
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
SSR and IDRs
Internacional's SSR and IDRs are sensitive to a negative rating action on ILC's IDRs. In addition, the bank's IDRs and SSR could be affected by a change in Fitch's opinion on the parent's ability and propensity to provide support.
VR
A material deterioration in the Internacional's asset quality that results in a sustained decline in its operating profit to RWAs below 1% or a CET1 ratio consistently below 9% could be negative for its intrinsic creditworthiness.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
SSR and IDRs
Internacional's SSR and IDRs are equalized with the IDRs of ILC, and could be upgraded in the case of a positive rating action on its ultimate parent's IDRs. An upgrade of these ratings over the rating horizon is highly unlikely as the parent's IDRs have a Stable Outlook.
VR
Limited upside potential for Internacional's VR over the near term, given its small franchise and size within the Chilean financial system.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
SENIOR UNSECURED DEBT
The expected rating of the senior unsecured global debt is at the same level of the bank's LT IDR of 'BBB', considering the probability of default of the bonds is the same of the issuer. The bonds rank equal in right of payment with all other present or future unsecured and unsubordinated obligations of the issuer. The notes will be effectively subordinated to secured indebtedness and to certain direct, unconditional and unsecured general obligations that in case of the bank insolvency are granted preferential treatment pursuant to Chilean law.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Internacional's senior unsecured debt ratings would move in line with the bank's LT IDR.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Internacional's senior unsecured debt ratings would move in line with the bank's LT IDR.
VR ADJUSTMENTS
The Business Profile score of 'bbb-' is above the 'bb' category implied score due to the following adjustment reason (s): Group Benefits and Risks (positive).
The Earnings & Profitability score of 'bb+' is below the 'bbb' category implied score due to the following reason: Historical and Future metrics (negative).
The Funding & Liquidity score of 'bbb-' is above the 'bb' category implied score due to the following reason (s): Liquidity Coverage (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
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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