Fitch Ratings has removed certain ratings of four Latin American banks from Under Criteria Observation (UCO) and affirmed their Viability Ratings (VRs), Long-Term Issuer Default Ratings (IDRs) and senior debt ratings of the entities as detailed at the end of this release.
The ratings were placed under UCO on Nov. 17, 2021, following the publication of its updated Bank Rating Criteria on Nov. 12, 2021. In addition, Fitch has assigned new government or shareholder support ratings to some of the banks and withdrawn the support ratings and support ratings floors as described below.
The banks whose ratings have been removed from UCO are Banco BICE, Banco de Brasilia S.A., Banco Consorcio and Banco Fibra S.A. The UCO condition applies to the VRs of these banks and to their Long-Term IDRs, except for Banco Consorcio.
In line with the updated criteria, Fitch has assigned 'bb+' and 'ns' Government Support Ratings (GSR) to Banco BICE and Banco Fibra, respectively, and 'bbb' and 'b' Shareholder Support Ratings (SSRs) to Banco Consorcio and Banco de Brasilia S.A., respectively.
Rating Withdrawals
Fitch is withdrawing Banco BICE and Banco Fibra's Support Rating (SR) of '3' and '5' and the Support Rating Floor (SRF) of 'BB+' and 'NF', respectively, as they are no longer relevant to the agency's coverage following the publication of updated Bank Rating Criteria on Nov. 12, 2021.
Fitch is withdrawing Banco Consorcio and Banco de Brasilia's SR of '2' and '4', respectively, as they are no longer relevant to the agency's coverage following the publication of updated Bank Rating Criteria on Nov. 12, 2021.
Key Rating Drivers
Banco BICE
VR, IDRs and Senior Debt: Fitch has affirmed and removed Banco BICE's 'bbb+' VR and 'BBB+' Long-Term IDRs from UCO. The bank's senior unsecured long-term debt rating of 'BBB+', which is anchored to its Long-Term IDR, was also affirmed and removed from UCO. The rating actions are based on Fitch's assessment that the bank's risk profile has a stronger impact on the assigned VR than the weighting would suggest (10%). The bank conservative risk profile, currently core at 'a-', one notch above the operating environment (OE), will have a positive impact on a bank's financial metrics beyond that currently captured in the financial Key Rating Drivers (KRD) scores over the long term.
Support Ratings: The GSR reflects the bank' small franchise within the Chilean financial system (3.4% of costumers deposits). In Fitch's view, this results in a moderate or low systemic significance with a more limited contagion risk, despite the sovereign's consistently strong statements on support for banking system.
Banco Consorcio
VR: Banco Consorcio's 'bbb' VR has been affirmed and removed from UCO. The bank's Bussiness Profile, a KRD with a higher weighting, is now scored at 'bbb' as Fitch upgraded it from 'bbb-'. Accordingly, the implied VR for Banco Consorcio is now 'bbb' in line with the entity assigned VR. Fitch's assessment of the bank's business profile, which includes a moderate, albeit growing, domestic franchise, is positively influenced by group benefits and risks to arrive at a 'bbb' business profile score above the implied 'bb' score. The bank benefits significantly from the strong franchise of its ultimate parent Consorcio Financiero S.A., the largest insurer group in Chile with a strong leading franchise with about 17% of market share in total assets and retained premium, as of Dec. 31, 2021, improving the bank access to a very large customer and products base which could help the bank to achieve its growth and diversification targets over the long term.
Support Ratings: The SSR reflects the potential support from its parent company, Consorcio Financiero S.A., if needed. Fitch believes the parent's propensity to provide support to Banco Consorcio is high given the bank's important role in the group providing core products and complementary financial services, as well as the potential implications for the parent should the bank default, given the cross-default clauses that exist in Consorcio Financiero's debt instruments.
Banco de Brasilia
VR and IDRs: Fitch has affirmed and removed Banco de Brasilia (BRB)'s VR and IDRs from UCO, based on Fitch's assessment that the bank's risk profile has a stronger impact on the assigned VR than the weighting would suggest (10%). The bank's conservative risk profile focused on secured lending, currently at 'bb-', will have over the long term a positive impact on a bank's financial metrics beyond that currently captured in the financial KRD scores.
Support Ratings: The SSR reflects Fitch's view that Government of Federal District (GDF) has relatively limited capacity to support BRB should the need arise despite being very willing to do so. BRB is strategically important for GDF, as it is the local government's main financial agent and it has a meaningful market share in the state's loans and deposits. In addition to its commercial operations, BRB performs a policy role for the region through lending operations that promote development and economic growth.
BRB's SSR is driven by Fitch's internal opinion of GDF's creditworthiness.
Banco Fibra
VR and IDRs: Fitch has affirmed and removed Banco Fibra's VR and IDRs from UCO. The bank's Asset Quality, a KRD with a higher weighting, is now scored at 'bb-' as Fitch upgraded it from 'b+'. The bank's asset quality compares favourably against its peers, with an NPL ratio of 0.6% in December 2021 (1.6% in December 2020 and 4.5% in December 2019). The improving NPL ratio is a result of a combination of credit portfolio growth and a nominal reduction in delinquent loans. To date, the bank has not experienced any material deterioration in asset quality measures despite the weak macroeconomic environment caused by the pandemic. The impaired Loans average last four years was 4.5%. With a Loan Loss Reserve of 85% in December 2021, Fitch believes the bank is in an adequate position to absorb credit deterioration.
Support Ratings: Banco Fibra's GSR reflects Fitch's view that the bank cannot rely on receiving extraordinary support from the sovereign.
Key Rating Driver 1
Banco BICE
Banco BICE's Long-Term IDR is driven by its intrinsic creditworthiness, as reflected in its VR of 'bbb+', which is highly influenced by the entity's bussiness profile marked by its moderate franchise and conservative risk appetite. The ratings also consider the bank's low impairment ratios, which are underpinned by Banco BICE's conservative risk management policies, as well as its more diversified revenue mix and funding relative to local peers. Although the bank's capital metrics are lower than similarly rated peers, excess loan loss reserves also supports Banco BICE's loss absorption capacity.
Banco Consorcio
Banco Consorcio's IDRs are driven by its VR of 'bbb', and do not factor in any extraordinary support from its parent, Consorcio Financiero S.A. However, the bank's IDRs are currently at the same level as would be derived from the institutional support approach, given that it remains a core subsidiary for its parent. Banco Consorcio's VR is highly influenced by its bussiness profile, which includes a moderate, albeit growing, franchise. The bank had a loan market share of 2.3%, excluding the system's operations abroad, as of Dec. 31, 2021, and its operations are highly concentrated in the corporate and real estate segments. Banco Consorcio's VR also reflects its track record of maintaining a strong financial profile as the bank grows. The latter is driven by the bank's good profitability, solid capitalization, adequate credit risk management and improved liquidity.
Banco de Brasilia
BRB's Long-Term IDRs are driven by its intrinsic creditworthiness, as reflected in its VR of 'bb-', which is highly influenced by BRB strong franchise in the Federal District with a stable and diversified retail funding base. The ratings also consider the bank's good asset quality and adequate provisions, which are underpinned by BRB's conservative risk management policies, as well as its more diversified revenue mix relative to local peers.
At December 2021, payroll deductible loans and mortgages made up 46% and 21% of gross loans, respectively. Both portfolios present low credit risk due to the robustness of the type of guarantee. In addition, the bank's strong business profile, over the long term, will also have a positive impact on a bank's financial metrics and is one of the reasons for the bank's VR to be assigned at a level above its implied VR.
Banco Fibra
Banco Fibra's ratings are highly influenced by its improved risk profile since its retail portfolio run-off. This has supported continuous progress on the execution of its restructuring plan has led to notable improvements in asset quality in the last four years. However, they also reflect its only modest, albeit improving, core operating profitability and capitalization metrics that are at the low end for its rating category.
Since dropping its retail segment, the bank has adopted a more conservative underwriting standard, with a focused client target market approach and mainly offering structured credit products with some kind of guarantee. This approach proved to be beneficial during the pandemic period, resulting in a steady improvement in asset quality measures throughout these years.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
IDRS, VRs and Senior Debt
Banco BICE
Banco BICE's IDRs and VR could be downgrade if BICE's CET1 ratio is not maintained at a minimum of 10% over the rating horizon, either due to lower earnings retention or a marked increase in risk appetite.
In addition, Banco BICE's VR could be downgraded if its operating profit to RWA ratio falls and remains consistently below 1%.
Banco BICE's senior unsecured debt rating 'BBB+' would generally move in tandem with the bank's long-term rating.
Banco Consorcio
Downward pressure on Banco Consorcio's VR could stem from lower liquidity levels or a higher risk appetite that results in significantly weaker asset quality, which affects the bank's profitability (operating profit/risk weighted assets falling and remaining below 1%) and, ultimately, its capitalization, with its CET1 ratio falling and remaining consistently below 10%. In addition, the downward potential of Banco Consorcio's IDRs is limited given that these are at the same level that could be achieved based on parent support.
Banco de Brasilia
A downgrade of Brazil's sovereign rating, due to the constraint of the sovereign ratings on the bank's Long-Term IDRs and VR.
A sustained decline in the operating profit/RWA ratio below 2.5%.
A sustained deterioration in the bank's CET1 ratio below 11%.
Banco Fibra
A sustained reduction in the bank's capitalization driven by fast credit portfolio expansion, significantly outpacing its internal capital generation to a CET 1 ratio below 8%.
A substantial deterioration of the bank's asset quality and earnings driven by a significant change in long-term strategy.
Operational losses in 2021.
Support Ratings
Banco BICE's GSR is sensitive to changes in Fitch's assessment about the ability and / or propensity of the sovereign to provide timely support to the bank.
Banco Consorcio's SSR reduction is subject to the potential downgrade of its ultimate parent. In addition, the bank's SSR could be affected by a change in Fitch's opinion on its parent's ability and propensity to provide support, which appears unlikely in the medium term.
Banco de Brasilia:
Material negative changes in Fitch's assessment of GDF's ability and willingness to provide support to BRB could affect the SSR of the bank.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
VRs and IDRs:
Banco BICE and Banco Consorcio
A potential VR upgrade for this group of banks is limited given their relatively moderate domestic franchises.
Banco de Brasilia
A sustained recovery in the macroeconomic environment, including a reduction of vulnerabilities in the Brazilian economy that could underpin an IDR's Outlook revision to Stable.
Although unlikely, an upgrade of the sovereign.
BRB's IDRs have a Negative Outlook, which makes an upgrade in the near future highly unlikely.
Banco Fibra
A sustained improvement in operating profitability (Operating Profit/RWA) of over 3% without deterioration in asset quality metrics.
Improvement in its capitalization metrics (e.g. a CET 1 ratio above 14%).
An upgrade is unlikely in the near future.
Support Ratings:
Banco BICE:
A potential rating upgrade in the bank's GSR is unlikely. Fitch does not consider Banco BICE to be D-SIBs in the Chilean financial system.
Banco Consorcio:
An upgrade in the bank's SSR could be driven from a similar rating action in their ultimate parent's ratings.
Banco de Brasilia:
Material changes in Fitch's assessment of GDF's ability and willingness to provide support to BRB could affect the SSR of the bank.
Banco Fibra:
A potential upgrade of Banco Fibra's GSR is unlikely for the foreseeable future, as this would only arise from a material gain in the bank's systemic importance.
VR ADJUSTMENTS
Banco BICE
The VR of 'bbb+' has been assigned above the 'bbb' implied VR due to the following adjustment reasons: Risk Profile (positive).
The Bussiness Profile score of 'bbb' has been assigned above the 'bb' category implied score due to the following adjustment reasons: Bussiness model (positive) and Strategy and execution (positive).
The Capitalization and Leverage score of 'bbb-' has been assigned above the 'bb' category implied score due to the following adjustment reasons: Reserve coverage and asset valuation (positive) and Risk profile and business model (positive).
Banco Consorcio
The Bussiness Profile score of 'bbb' has been assigned above the 'bb' category implied score due to the following adjustment reasons: Group benefits and risks (positive).
The Earnings and Profitability score of 'bbb-' has been assigned above the 'bb' category implied score due to the following adjustment reasons: Historical and future metrics (positive).
The Capitalization and Leverage score of 'bbb' has been assigned above the 'bb' category implied score due to the following adjustment reasons: Capital flexibility and ordinary support (positive).
Banco de Brasilia
The VR of 'bb-' has been assigned above the 'b+' implied VR due to the following adjustment reason(s): Risk Profile (positive).
The Business Profile score of 'bb-' has been assigned above the 'b+' category implied score due to the following adjustment reasons: Business Model (positive).
Banco Fibra
The Asset Quality score of 'bb-' has been assigned above the 'b' category implied score due to the following adjustment reasons: Historical and future metrics (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 '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
BRB - BANCO DE BRASÍLIA S.A. 
