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  HOME | Venezuela (Click here for more Venezuela news)

Fitch Affirms Venezuela Bank Ratings at 'CC' Following Sovereign Downgrade

NEW YORK -- Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) at 'CC' and the Viability Ratings (VRs) at 'cc' of the following six private sector Venezuelan banks, following the Nov. 3, 2017 downgrade of the country's sovereign rating to 'C':

--Banesco, Banco Universal, CA (BBU);
--Mercantil, C.A. Banco Universal (Mercantil);
--Banco Occidental de Descuento, Banco Universal C.A. (BOD);
--Banco del Caribe, C.A. Banco Universal (Bancaribe);
--Banco Exterior, C.A. Banco Universal (Exterior);
--Banco Nacional de Credito C.A. (BNC)

These banks are among the largest private sector universal commercial banks in the country with a combined market share of 42.5% by assets at September 2017. Their IDRs are driven by their VRs, or standalone intrinsic financial profiles, and do not take into account either institutional or state support.

KEY RATING DRIVERS

In Fitch's view, although the Venezuelan authorities have announced their intention to pursue a renegotiation of the sovereign external debt obligations, the banks under review are not similarly undergoing a default-like process. The banks report adequate levels of cash and cash equivalents ranging from 36%-49% of short term funding at September 2017.

Their direct exposure to the sovereign is also much reduced, with holdings of public sector securities of less than 6% of total assets at all issuers as of the same date. The highly transactional nature of the banks' balance sheets as well as the absence of foreign currency obligations and the expected continuance of capital controls mitigate concerns over debt payment capacity.

The banks' ratings also reflect concerns about downside risks to solvency and asset quality in the context of an expected sovereign default and a possibly acute forced economic adjustment, particularly considering the very weak and uncertain operating environment.

High inflation, which Fitch expects to exceed 600% in 2017, distorts financial ratios and, in Fitch's view, they are not reliable for the purposes of comparison with other emerging market peers.

The banks' low impaired loans, which do not exceed 0.2% of gross loans at September 2017, are diluted by inflation-led loan growth (which averaged 139.5% across the banking system in 2016).

Capital levels remain pressured by high asset growth.

In addition, the banks' continued nominal profitability and adequate liquidity is attributable to the continued growth of deposit funding (primarily demand deposits) which earn deeply negative returns in real terms.

RATING SENSITIVITIES

Deterioration in the banks' financial performance resulting in capitalization levels near or below the regulatory minimum could result in a negative rating action. In addition, while not Fitch's base case due to capital controls in place, a material and persistent decline in deposits would also pressure ratings downward. There is virtually no upside potential in the banks' ratings given the exceptionally weak operating environment they are facing, although this depends on the sovereign rating actions when and if the debt restructuring process is completed.

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 weak capacity and lack of a consistent policy on bank support. In addition, in Fitch's view, government interference in the banking system and the economy as a whole negatively influences shareholder support.


Fitch has affirmed the following ratings:

BBU
--Long-term Foreign and Local Currency IDRs at 'CC';
--Short-term Foreign and Local Currency IDRs at 'C';
--Viability Rating at 'cc';
--Support Rating at '5';
--Support Rating Floor at 'NF'.

Mercantil
--Long-term Foreign and Local Currency IDRs at 'CC';
--Short-term Foreign and Local Currency IDRs at 'C';
--Viability Rating at 'cc';
--Support Rating at '5';
--Support Rating Floor at 'NF'.

BOD
--Long-term Foreign and Local Currency IDRs at 'CC';
--Short-term Foreign and Local Currency IDRs at 'C';
--Viability Rating at 'cc';
--Support Rating at '5';
--Support Rating Floor at 'NF'.

Bancaribe
--Long-term Foreign and Local Currency IDRs at 'CC';
--Short-term Foreign and Local Currency IDRs at 'C';
--Viability Rating at 'cc';
--Support Rating at '5';
--Support Rating Floor at 'NF'.

Exterior
--Long-term Foreign and Local Currency IDRs at 'CC';
--Short-term Foreign and Local Currency IDRs at 'C';
--Viability Rating at 'cc';
--Support Rating at '5';
--Support Rating Floor at 'NF'.

BNC
--Long-term Foreign and Local Currency IDRs at 'CC';
--Short-term Foreign and Local Currency IDRs at 'C';
--Viability Rating at 'cc';
--Support Rating at '5';
--Support Rating Floor at 'NF'.


 

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