Fitch Ratings has taken rating actions on the following
private-sector Venezuelan banks and one holding company subsequent
to the downgrade of the sovereign's Issuer Default Ratings
(IDRs):
--Banesco, Banco Universal, CA (BBU);
--Banco Provincial, S.A., Banco Universal (Provincial);
--Mercantil, C.A. Banco Universal (Mercantil);
--Mercantil Servicios Financieros (MSF);
--Banco Occidental de Descuento (BOD);
--Banco del Caribe, C.A. Banco Universal (Bancaribe);
--Banco Exterior, C.A. Banco Universal (Exterior);
--Banco Nacional de Credito C.A. (BNC).
A full list of rating actions follows at the end of this press
release.
These rating actions follow the downgrade of Venezuela's IDRs to
'CCC' from 'B'. International ratings have been downgraded in line
with the sovereign. As with other emerging market commercial banks
in this rating category, the operating environment is a constraint
to bank ratings. In addition, the significant level of government
intervention and high level of exposure to sovereign securities
further undermines the financial flexibility of Venezuelan
banks.
All long-term national ratings have been downgraded considering
the relative strengths and weaknesses of each bank. All short-term
national ratings have been either downgraded or affirmed
accordingly.
These downgrades reflect the severe deterioration in the
operating environment and the Venezuelan economy's reduced capacity
to respond to external shocks, such as a sustained drop in oil
prices. Additionally, the banks' lower profitability, increased
exposure to retail and compulsory loans (segments more vulnerable
to an economic shock), as well as their reduced cushion to absorb
unexpected losses were also considered.
KEY RATING DRIVERS - IDRS, VRS AND NATIONAL RATINGS
These entities are the seven largest private sector universal
commercial banks in Venezuela, with operations primarily in the
country. All of these banks' Viability Ratings (VRs), or standalone
intrinsic financial strengths, drive their IDRs and do not take
into account either institutional or state support.
The operating environment is the key factor constraining the VRs
of all Venezuelan banks. Fitch recognizes that the current set of
foreign exchange controls have helped preserve the system's funding
base relative to past periods of severe macroeconomic imbalances
before these controls were implemented.
All national ratings for each bank consider the same strengths
and weaknesses as international ratings, but are based on the
relative creditworthiness of entities within Venezuela.
BBU
Despite sound profitability (even when adjusted for inflation)
and loan quality indicators, BBU's international ratings are
limited by the operating environment. High exposure to the
Venezuelan public sector, large asset and liability tenor mismatch
due to the short contractual maturities (mostly demand deposits) of
its funding base also weigh on the bank's ratings. BBU's ratings
also consider its adequate liquidity and capitalization.
PROVINCIAL
Provincial's ratings are supported by its solid profitability
(even when adjusted for inflation) and its strong franchise
compared with its peers. The ratings also incorporate the bank's
conservative risk management and operational support from Spain's
Banco Bilbao Vizcaya Argentaria (BBVA), its majority shareholder,
which has a 55% stake in the bank.
However, the bank's ratings are limited not only by the
operating environment (international ratings) but also, by a large
asset and liability tenor mismatch given that the vast majority of
funding consists of demand deposits and short-term time
deposits.
MERCANTIL
Although Mercantil's credit risk profile relative to domestic
peers has been resilient, its international ratings are limited by
the operating environment. High exposure to the Venezuelan public
sector, large asset and liability tenor mismatch due to the short
contractual maturities (mostly demand deposits) of its funding base
and a decline in the bank's overall loss absorption capacity in
recent years, as measured by its equity/assets ratio and loan loss
reserves/gross loans, also weigh on the bank's ratings.
In addition, Mercantil's ratings consider the strength of its
balance sheet, management's experience in dealing with the
inherently volatile operating environment in Venezuela, and its
ample market share and strong franchise which allowed the bank to
maintain a relatively stable deposit base.
MSF
MSF's national ratings reflect the geographical diversification
of its operations, adequate liquidity and the holding company's low
double leverage. The ratings also take into account the strengths
of its main subsidiary, Mercantil.
As MSF's cash flow is dependent on Mercantil, which by local
regulation can only pay dividends up to 50% of net income, rather
than its own generation of cash flows, the holding company's
long-term national rating is one notch below its main operating
subsidiary's national rating. The ratings assigned to MSF's
issuances in the local market are in line with its national ratings
as these are all senior unsecured debt issuances.
BOD
BOD's ratings incorporate a history of volatile profitability,
capitalization, and asset quality indicators relative to peers.
With the exception of liquidity, the bank's financial metrics are
weaker than other large universal commercial banks in Venezuela.
High exposure to the Venezuelan public sector, large asset and
liability tenor mismatch due to the short contractual maturities
(mostly demand deposits) of its funding base and a decline in the
bank's overall loss absorption capacity in recent years, as
measured by its equity/assets ratio and loan loss reserves/gross
loans, also weigh on the bank's ratings.
The bank is controlled by Cartera de Inversiones Venezuela
(CIV), a diversified holding company with interests in financial
and nonfinancial companies.
CARIBE
Notwithstanding Bancaribe's resilient performance and stable
asset quality indicators, its international ratings are limited by
its operating environment and a less robust franchise compared to
larger Venezuelan banks. High exposure to the Venezuelan public
sector, large asset and liability tenor mismatch due to the short
contractual maturities (mostly demand deposits) of its funding base
also weigh on the bank's ratings. Bancaribe's ratings also
incorporate a strengthening of capital ratios in 2013, following
pressures related to high nominal asset growth in recent years and
adequate liquidity.
Scotiabank has a minority stake of 27% in Bancaribe.
EXTERIOR
Exterior's ratings reflect its solid loan quality indicators and
profitability ratios (even when adjusting for inflation). Liquidity
and capitalization remain adequate, though weaker than some of its
larger domestic peers. Its ratings are limited not only by the
operating environment (international ratings) but also, by a less
robust franchise compared to larger banks. Its ratings are also
limited by a significant asset and liability tenor mismatch, given
that the vast majority of its funding is represented by demand
deposits and short-term time deposits, as well as a large exposure
to Venezuelan sovereign debt.
Grupo Bancario IF has a 83% stake in Exterior.
BNC
Despite BNC's moderate but growing franchise as well as improved
capital ratios and loan quality indicators, the bank's ratings are
limited by high nominal credit growth in excess of its domestic
peers, lower profitability relative to local banks, and the
operating environment.
High exposure to the Venezuelan public sector, large asset and
liability tenor mismatch due to the short contractual maturities
(mostly demand deposits) of its funding base and a decline in the
bank's overall loss absorption capacity in recent years, as
measured by considering both its equity/assets ratio and loan loss
reserves/gross loans, also weigh on the bank's ratings. The ratings
also take into account adequate liquidity and funding.
RATING SENSITIVITIES - IDRS, VRS AND NATIONAL RATINGS
A downgrade of the sovereign's IDRs would result in a similar
action on the IDRs and VRs of these banks, which are currently
capped at the sovereign. Additional government intervention that
pressures financial performance of these banks could negatively
affect the banks' IDRs, VRs and National ratings. While not Fitch's
base case due to capital controls and liquidity in the domestic
market, a persistent decline in deposits would pressure
ratings.
Upside potential to any of the banks' ratings in the near term
is limited in light of current macroeconomic vulnerabilities.
KEY RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING AND
SUPPORT RATING FLOOR
The banks' Support Rating (SR) of '5' and Support Rating Floor
(SRF) of 'NF' reflect Fitch's expectation of no support. Despite
these banks' systemic importance, support cannot be relied upon
given Venezuela's highly speculative rating and lack of a
consistent policy on bank support. For those banks with foreign
shareholders, government interference in the banking system could
also negatively influence shareholder support if required.
Venezuela's propensity or ability to provide timely support to
these banks is not likely to change given the sovereign's very low
speculative-grade ratings. As such, the SR and SRF have no upgrade
potential.
Fitch has taken the following rating actions:
BBU
--Long-term foreign and local currency IDRs downgrade to 'CCC'
from 'B';
--Short-term foreign and local currency ratings downgraded to
'C' from 'B';
--Viability downgraded to 'ccc' from 'b';
--Support affirmed at '5';
--Support Floor affirmed at 'NF';
--Long-term national-scale rating downgraded to 'A+(ven)' from
'AA-(ven)';
--Short-term national-scale rating affirmed at 'F1+(ven)'.
Provincial
--Long-term foreign and local currency IDRs downgrade to 'CCC'
from 'B';
--Short-term foreign and local currency ratings downgraded to
'C' from 'B';
--Viability downgraded to 'ccc' from 'b';
--Support affirmed at '5';
--Support Floor affirmed at 'NF';
--Long-term national-scale rating downgraded to 'AA-(ven)' from
'AA+(ven)';
--Short-term national-scale rating affirmed at 'F1+(ven)'.
Mercantil
--Long-term foreign and local currency IDRs downgraded to 'CCC'
from 'B';
--Short-term foreign and local currency ratings downgraded to
'C' from 'B';
--Viability downgraded to 'ccc' from 'b';
--Support affirmed at 5;
--Support Floor affirmed at NF;
--Long-term national-scale rating downgraded to 'AA-(ven)' from
'AA+(ven)';
--Short-term national-scale rating affirmed at 'F1+(ven)'.
MSF
--Long-term national-scale rating downgraded to 'A+(ven)' from
'AA(ven)';
--Short-term national-scale rating affirmed at 'F1+(ven)';
--Long-term senior unsecured bonds national-scale rating
downgraded to 'A+(ven)' from 'AA(ven)';
--Short-term commercial paper national-scale rating affirmed at
'F1+(ven)'.
BOD
--Long-term foreign and local currency IDRs downgraded to 'CCC'
from 'B';
--Short-term foreign and local currency ratings downgraded to
'C' from 'B';
--Viability downgraded to 'ccc' from 'b';
--Support affirmed at '5';
--Support Floor affirmed at 'NF';
--Long-term national-scale rating downgraded to 'BBB-(ven)' from
'BBB(ven)';
--Short-term national-scale rating downgraded to 'F3(ven)'
'F3(ven)'.
Caribe
--Long-term foreign and local currency IDRs downgraded to 'CCC'
from 'B';
--Short-term foreign and local currency ratings downgraded to
'C' from 'B';
--Viability downgraded to 'ccc' from 'b';
--Support affirmed at '5';
--Support Floor affirmed at 'NF';
--Long-term national-scale rating downgraded to 'A-(ven)' from
'A+(ven)';
--Short-term national-scale rating downgraded to 'F2(ven)' from
'F1(ven)'.
Exterior
--Long-term foreign and local currency IDRs downgraded to 'CCC'
from 'B';
--Short-term foreign and local currency ratings downgraded to
'C' from 'B';
--Viability downgraded to 'ccc' from 'b';
--Support affirmed at '5';
--Support Floor affirmed at 'NF';
--Long-term national-scale rating downgraded to 'A+(ven)' from
'AA(ven)';
--Short-term national-scale rating downgraded to 'F1(ven)' from
'F1+(ven)'.
BNC
--Long-term foreign and local currency IDRs downgraded to 'CCC'
from 'B';
--Short-term foreign and local currency ratings downgraded to
'C' from 'B';
--Viability rating downgraded to 'ccc' from 'b';
--Support affirmed at '5';
--Support Floor affirmed at 'NF';
--Long-term national-scale rating downgraded to 'BBB-(ven)' from
'BBB(ven)';
--Short-term national-scale rating affirmed at 'F3(ven)'.
Additional information is available on www.fitchratings.com
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Jan. 31,
2014);
--'National Scale Ratings Criteria' (Oct. 30, 2013);
--'Sector Outlooks: An Update (Argentina, Brazil, Costa Rica,
Ecuador, Uruguay and Venezuela)' (Sept. 3. 2014)
--'2015 Outlook: Andean Banks' (Dec. 9, 2014);
--'Peer Review: Private Sector Venezuelan Banks' (Feb. 6,
2014).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397
National Scale Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082
Sector Outlooks: An Update (Argentina, Brazil, Costa Rica,
Ecuador, Uruguay and Venezuela)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=762088
2015 Outlook: Andean Banks (Colombia, Ecuador, Peru and
Venezuela)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=822148
Peer Review: Private Sector Venezuelan Banks (Facing
Macroeconomic Imbalances)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=733216
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=959316
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY
FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION,
RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM
THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY,
CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER
RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE
OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD
PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD
ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE
ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
Fitch RatingsTheresa Paiz Fredel(Primary Analyst - BBU, BOD,
Caribe, BNC)Senior Director+1-212-908-0534Fitch Ratings, Inc.33
Whitehall StreetNew York, NY 10004orMark Narron(Primary Analyst -
Provincial, Mercantil, Exterior)Director+1-212-612-7898orAndres
Marquez(Primary Analyst - MSF; Secondary Analyst - Mercantil,
Bancaribe)Director+571 326 9999, Ext. 1220orLarisa
Arteaga(Secondary Analyst - BOD,
BNC)Director+1-809-563-2481orCommittee ChairpersonAlejandro
GarciaSenior Director+52 81 8399 9100orMedia RelationsElizabeth
Fogerty, +1 212-908-0526New
Yorkelizabeth.fogerty@fitchratings.com