Fitch Upgrades Banco Provincial's L-T National Rating to 'AA+(ven)'
Fitch Ratings has upgraded the long-term National rating for Venezuela-based Banco Provincial (Provincial) to 'AA+(ven)' from 'AA(ven)' and its short-term National rating to 'F1+(ven)' from 'F1(ven)'. At the same time, Fitch has upgraded a VEB 300 million issuance of preferred shares issued in 2007 to 'AA-(ven)' from 'A+(ven)'. (The 'AA-(ven)' rating is equivalent to a 'A2' rating when using the mandatory rating scale required by the local Securities Exchange Commission.)
Fitch also has affirmed Provincial's international ratings as follows:
--Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'B+';
--Short-term foreign and local IDRs at 'B';
--Individual at 'D';
--Support at '5';
--Support Floor at 'NF'.
The Rating Outlook for the long-term IDRs is Stable.
The upgrade of Provincial's National ratings reflects its resilient performance in an extremely difficult operating environment, where government intervention and volatile economic activity have undermined private sector activities. The bank's conservative business approach, above average risk control policies and adequate business mix have resulted in above average and sustained profitability ratios, despite the complex array of controls and government interference in the banking sector. Also, capital ratios have been enhanced thanks to its increasing profitability and conservative expansion of its balance sheet, a trend that should continue in the medium term despite the challenge of the environment.
Provincial's ratings reflects its above-average performance in a highly unstable operating environment, with its good profitability, asset quality, and capitalization ratios based on a strong franchise, conservative risk control techniques, and the operational support of Spain's Banco Bilbao Vizcaya Argentaria (BBVA). Provincial's ratings are constrained by the negative effects of government intervention over the bank business and overall private sector activities.
Relatively ample spreads sustained by controlled funding cost and its participation in the retail/consumer loan market have reinforced Provincial's low credit costs and excellent efficiency levels, allowing the bank to post strong profits despite government intervention. The bank's return-on-average assets ratio has averaged 4.6% since 2007, a trend sustainable in the short and medium term.
The bank's comprehensive credit risk control tools and vested commercial efforts, benefited by a strong, albeit decreasing, loan demand since 2005, have helped Provincial to expand its loan portfolio, especially the share of loans to the retail and consumer market, while impaired loans remain under control (below 1% of total lending) and loan loss reserves are strong (almost 2.9% of total loans at June 30, 2009). A slight deterioration of the bank's asset quality ratios is possible due the weakening economic environment in Venezuela, but Provincial's thorough credit risk control policies and ample margins could mitigate such a trend.
Strong profits and conservative dividends have strengthened Provincial's equity base, a trend that may continue in the near term. The equity to assets ratio improved to 9.9% at June 30, 2009 (excluding short-term nondeferral preferred shares issued in 2007), while the bank's free capital ratio, which excludes the burden of fixed and foreclosed assets, rose to an adequate 8.7%.
Provincial was the third largest universal bank in Venezuela at June 30, 2009 in terms of invested funds (assets plus investment funds), with a 9.92% asset market share. Provincial is 55% owned by Spain's BBVA, with Grupo Polar being the second largest shareholder with a 27% stake.
These rating actions reflect the application of Fitch's current criteria which is available on Fitch's web site at www.fitchratings.com and specifically include: 'Global Financial Institutions Rating Criteria' (December 2009).
Additional information is available at www.fitchratings.com.
Franklin Santarelli, +1-212-908-0739 (New York)
Pedro El Khaouli, +58 212 286 3232 (Caracas)
Brian Bertsch, +1-212-908-0549
(Media Relations, New York)