SCOTIABANK PERÚ S.A.A.
Fitch Ratings has upgraded
itch has additionally affirmed SBP Local Currency (LC) IDRs at 'A-' and its Viability Rating (VR) at 'bbb'. Fitch has also affirmed the Short-Term FC and LC IDRs at 'F1'. The Rating Outlook for the Long-Term IDRs is Negative.
The SSR and FCIDR upgrade to 'a-' and 'A-', respectively, follows the upgrade of Peruvian's Country Ceiling to 'A-' from 'BBB+'. For additional information please review 'Fitch Affirms Peru at 'BBB'; Outlook Negative' dated
The Negative Outlook on SBP's LT FC and LC IDRs mirrors the Outlook on
Key Rating Drivers
Parent Support: SBP's IDRs and SSR are based on expected support it would receive from its parent (
SBP's Local Currency (LC) IDR of 'A-'is two notches above
Challenging Operating Environment: As the bank's IDRs are based on support, SBP's intrinsic financial profile has a moderate influence on its IDR. SBP's Viability Rating (VR) is in line with the implied VR, which is underpinned by its solid business profile and capitalization. In Fitch's view, SBP's core financial metrics have sufficient headroom to maintain its current VR, even if economic conditions are moderately weaker than Fitch's base case due to external shocks or ongoing political and policy uncertainty.
Diversified Business Model: SBP has a diverse and stable business model, and its overall business is weighted toward traditional commercial banking and, increasingly, retail operations. Its reliance on volatile businesses is modest. Likewise, on the funding side, SBP is funded by roughly 50% corporate and 50% retail and therefore counts on a stable and diversified deposit base. SBP's business model has benefited from flight to quality under stressed environments. The bank is the third-largest Peruvian universal bank, with a market share of approximately 16.2% by assets and 12.7% by deposits as of YE 2022.
Stable Asset Quality: Fitch expects asset quality to remain stable over the near term due to the bank's cautious approach and conservative risk preference for secured portfolios, which should reduce the impact of a challenging operating environment (OE) in 2023. Fitch expects SBP's past-due loans to reach around 4% at YE 2023 (
Solid Operational Profits: SBP's profitability is underpinned by its risk appetite adjustments, good efficiency levels and solid business generation amid local political uncertainty. Fitch expects the bank's core metric of operating profit/risk-weighted assets (RWAs) at YE 2023 to remain around the average of the last four years of 2.0%. Pressures on net interest margin are expected to continue in 2H23, reflecting limited business growth and higher funding costs. A rise in impairment expenses and inflation will continue to weigh on operating expenses in 2023. SBP's operating profit/RWA ratio at 1H23 of 2.0% was lower than the Peruvian bank average of 3.0% in the same period.
Strong Capital Levels: Fitch views the bank's capital as strong considering its relatively ample loan loss reserves, good asset quality, recurrent earnings generation, adequate risk management and ordinary support. Limited asset growth and profit recovery continue underpinning an improvement in capitalization. Fitch expects
Adequate Liquidity and Stable Funding: SBP has appropriately managed its liquidity to fund asset growth while closely matching the maturities of its liabilities. SBP's funding profile is strengthened by its diversified mix of deposits, short-term funding and long-term debt. Fitch expects deposit base and regular access to capital markets to continue boosting loan growth. Its loans to customer deposits ratio of 133.4% as of
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
A sovereign downgrade would result in similar rating actions on SBP's SSR, VR, and FC and LC IDRs, as Fitch rarely rates VRs above the sovereign or SSRs and FC IDRs above the Country Ceiling.
Although not likely over the parent rating horizon (given its Stable Outlook), and absent of a sovereign downgrade, a downgrade of BNS (from AA-/Stable) by three or more notches would trigger a downgrade of SBP. However, in the event of a downgrade of BNS's IDRs to the level of
Pressure on SBP's VR could arise from a downgrade in the OE currently with negative trend, or a significant asset quality and profitability deterioration that erodes SBP's reserve and capital cushion, specifically operating profit/RWA sustained below its historical average of 2.0% and FCC ratio below 13%.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
A rating upgrade of SBP's IDRs, SSR or VR is unlikely over the rating horizon given the Negative Outlook on the sovereign's LT IDRs. Over the medium term, these ratings could be upgraded if the sovereign's ratings and Country Ceiling are upgraded.
VR ADJUSTMENTS
The OE score has been assigned above the implied score due to the following adjustment reasons: sovereign rating (positive) and macroeconomic stability (positive).
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
Scotiabank Peru's ratings are support-driven by BNS.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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