Fitch Ratings has affirmed
The Rating Outlook for the Long-Term IDRs is Stable.
Fitch has withdrawn Itau Colombia's Support Rating and Support Rating Floor as it is no longer relevant to the agency's coverage following the publication of Fitch's updated Bank Rating Criteria on
Key Rating Drivers
Itau Colombia's IDRs are driven by the bank's VR, which is in line with the implied VR, and primarily reflect its business profile, underpinned by its ultimate parent's expansion strategy and business model that Fitch considers of strategic importance to consolidate the bank's presence in
The Stable Rating Outlook reflects Fitch's belief that any remaining pressures on the operating environment, such as upcoming elections or a higher than expected deceleration in economic growth, is not anticipated to materially impact the bank's financial profile.
The bank continues to extensively implement
Asset Quality Improvement: Itau Colombia has made important efforts to redesign its risk profile and apply a conservative approach to the complete credit risk process. Continued tuning of its internal models and ongoing monitoring of the loan portfolio and warning signals, as well as a strengthened collection process, have contributed to asset quality performance. Consolidated PDLs decreased to 3.5% of gross loans at YE 2021 from 3.7% at YE 2020 (
Profitability Explained by Corporate Focus: Itau Colombia's profitability is low relative to peers due to the bank's corporate focus and limited size. Operating profitability in 2021 reflected the positive impact of economic reactivation, resumed loan growth, higher fees related to the retail segment, and cost control amid a process of banking transformation. The bank's operating profit to RWA ratio increased to 0.5% at YE 2021 (
Tight Capital Ratios: Fitch views the bank's capital as relatively tight when compared to other rated institutions in similar operating environments (universal commercial banks in a 'bb+' operating environment). However, Fitch also considers Itau Colombia's ample loan loss reserves and the potential to receive capital injections (ordinary support) if required from its ultimate parent (
Sound Liquidity: The bank maintains good liquidity levels that somewhat offsets its concentrated liability structure. Itau Colombia's moderate franchise limits its competitive advantage and influences funding costs. The bank has made a relevant effort toward growing low-cost and stable funding. The bank's loans/deposits ratio was 113% at YE 2021 due to the use of mid- to long-term time deposits, domestic and overseas bond issuances, and increased retail funding. The deposit structure is heading toward a composition of stable resources, in line with the more conservative liquidity policies and liquidity coverage ratios, which stood at 116.3% as of
Shareholder Support Rating: Fitch believes that Itau Colombia is strategically important to
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Itau Colombia's ratings could be downgraded if its operating profit to RWA ratio reverts consistently below 0.5% on a yearly basis, especially considering the sensitive margins and credit cost.
The ratings could also be pressured by a material deterioration of asset quality and profitability, causing a sustained decline in the CET1 ratio below 9% assuming excess reserve maintenance and challenging operating environment.
Itau Colombia's SSR would be affected by a negative change in
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Positive rating actions could occur if Itau Colombia demonstrates a capacity to sustain improvements in earnings and asset quality metrics, while also maintaining an CET1 ratio greater than 12% and operating profit to RWA above 1.25% amid the relatively faster loan growth that the bank could have within a better operating environment.
A positive change in
VR ADJUSTMENTS
The capitalization and leverage score has been assigned above the implied score due to the following adjustment reason: Capital Flexibility and Ordinary Support (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
Itau Colombia shareholder support rating are linked to
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of 3. 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.
RATING ACTIONS
Entity / Debt
Rating
Prior
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
4
Support Floor
WD
Withdrawn
B+
Shareholder Support
bb-
New Rating
Page
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