Fitch Affirms Coopeuch's IDR at 'BBB'; Outlook Stable
Fitch Ratings has affirmed Cooperativa del Personal de la Universidad de Chile's (Coopeuch) ratings as follows:
--Long-term Issuer Default Rating (IDR) at 'BBB'; Outlook Stable;
--Short-term IDR at 'F2';
--Local-currency long-term IDR at 'BBB'; Outlook Stable;
--Local-currency short-term IDR at 'F2';
--Viability Rating at 'bbb';
--Support at '5';
--Support Rating Floor at 'No Floor';
--Long-term national rating at 'AA-(cl)'; Outlook Stable;
--Senior unsecured notes national rating at 'AA-(cl)';
--Short-term national rating at 'N1+(cl)'.
Coopeuch's ratings reflect its sound performance, solid capitalization, good asset quality, and flexible funding. The ratings also factors Coopeuch's consolidated franchise on consumer loans granted to public sector employees, which provides an important base for a progressive expansion of its business into the private sector without payroll deduction, a segment with lower margins and higher exposure to the economic cycle. Also, its ratings remain limited by the relatively narrow business niche at its exposure to economic cycles; alongside with this typical limitations for niche players, income diversification lacks behind other highly rated and full service financial institutions.
The Rating Outlook remains Stable. However, a sustained reduction of Coopeuch's net interest margin, and or unexpected deterioration of its asset quality that dampens the entity's capital position would trigger a negative rating action. Further diversification of its business model, that brings diversified income sources and reduce its exposure to the economic cycle may sustain positive rating actions.
Coopeuch's profitability metrics remain relatively high, although they have declined over the past years. Coopeuch's profits are underpinned by an ample net interest margin derived from its consumer lending focus. However, higher loan loss provisions together with lower growth due to the reduction of the maximum voluntary payroll deduction applicable for public sector employees (15% cap) has pressured profitability over the past years. There has also been an increase in expenses and investments carried out by the entity in order to be prepared for its expansion into the private sector that have prevented higher profits.
In Fitch's opinion, Coopeuch's current strategy to gradually evolve into a more diversified business model represents higher growth opportunities and income diversification, but also new risks and lower margins than those historically generated by its traditional target market. Nevertheless, under Fitch's base case scenario, Coopeuch's profitability will remain strong and higher than that of the Chilean banking system
Asset quality is adequate as 90-day past due loans accounted for 4.01% of the gross portfolio as of August 2012 (vs. 3.6% as of December 2011), with a 1.57x reserves coverage (vs. 1.6x as of December 2011). Consumer loans collected through payroll deductions dominates the loan portfolio (62.9%) but its relative weight has declined over the past years, which explains the increasing trend of non-performing loans. Loans without payroll deduction are expected to account for 32.4% of gross loans by the end of 2012 (vs. 24% in December 2011 and 14.3% in December 2010) and 44% in the medium term. Coopeuch also expects an increasing participation of payroll deduction loans to private sector employees (11.3% of total assets in August 2012), a segment which has a significant growth potential.
Coopeuch's funding has strengthened and diversified in recent years, due to the steady increase of its retail deposit base, institutional investors and bonds issuance. Main sources of funding are retail deposits (30.6% of assets in August 2012) together with the net worth (29%), followed in importance by banks funding (13.5%), institutional deposits (12.6%) and bonds (9.6%). As of August 2012, 69.2% of Coopeuch's total assets were funded by its equity, retail deposits and long-term bonds, which enhance Coopeuch's funding stability and reduce its reliance on wholesale funding.
Coopeuch's capital metrics are strong and are well above the Chilean banking system average. As of August 2012, total capital represented 31.2% of risk-adjusted assets compared to 13.26% averaged by the banking system. Fitch estimates Coopeuch's capital levels will continue above 28% of its risk-adjusted assets, which together with ample reserves provides a sizable cushion to support future growth.
Established in 1967, Coopeuch is the largest credit union in Chile (520 members and CLP 1,062 billion in total assets as of August 2012) with a market share of 5.1% of total consumer loans granted by the Chilean banking system, Cajas de Compensacion de Asignaciones Familiares, and credit unions supervised by the Chilean Superintendence of Banks and Financial Institutions. It takes deposits from public and places consumer and housing loans among its members. Its current strategy is to evolve from a business model primarily focused on consumer loans granted to public sector employees through payroll deduction, towards a multiproduct multi-channel model with an increasing participation of loans granted to the private sector through direct payment collection and payroll deduction.
Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria', Aug. 15, 2012;
--'Finance & Leasing Companies Criteria', Dec. 12, 2011;
--'National Ratings Criteria', Jan. 19, 2011;
--'Evaluating Corporate Governance', Dec. 13, 2011.
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Finance and Leasing Companies Criteria
National Ratings Criteria
Evaluating Corporate Governance
Franklin Santarelli, +1-212-908-0739
One State Street Plaza
New York, NY 10004
Primary Analyst (National Ratings):
Eduardo Santibanez, 56 2 499 3307
Abraham Martinez, +56-2-499-3317
Rene Medrano, +503 2516 6610
Elizabeth Fogerty, +1-212-908-0526