Fitch Ratings has affirmed
Fitch has also affirmed Davivienda's Viability Rating (VR) at 'bb+' and its National Long-Term rating at '
Fitch has also affirmed
Fitch has placed
The RWN on SBC's ratings reflects the potential credit implications due to anticipated changes in its shareholder structure. This is because, upon completion of the transaction, the expected main shareholder, Davivienda, would be rated lower than the current shareholder,
Fitch Ratings has also affirmed the Long- and Short-Term National Ratings of
These actions follow the
Upon completion of the non-cash agreement, Davivienda's assets, liabilities, and equity are expected to grow by 40% while maintaining its capital position relatively stable without any goodwill generation. The strengthened market position in these three markets will enhance Davivienda's footprint as a regional leader, while synergies from BNS will provide access to a broad global offering of financial solutions.
Fitch expects to resolve the RWN on SBC upon closing of the transaction, which could take more than six months.
Key Rating Drivers
Davivienda
The affirmation of Davivienda's ratings reflects Fitch's expectation that this transaction will not negatively impact its operations or its strong business and financial profiles. Particularly, Fitch expects Capitalization core metric to be maintained above 10%, once the transaction is completed. Upside potential is limited due to challenges regarding the integration of bank operations and the significant efforts needed to normalize asset quality and profitability, mainly in
VR Drives IDRs: Davivienda IDRs are driven by its VR. The VR is one notch above the 'bb'-implied VR and reflects the bank's strong business profile. This factor has a positive impact on the bank's credit profile given its leading market position in
Strong Business Profile: Davivienda's business profile is underpinned by its stable total operating income (TOI), strong market position in
Improving Asset Quality: Davivienda's improvement in the asset-quality metrics of its consumer portfolio suggested a more rigorous credit risk management approach, important collection efforts and a shift toward borrowers of better credit quality. Before regulatory approvals are obtained, Fitch anticipates that NPL ratio will improve in 2025, mainly in
Adequate Capital Metrics: Davivienda's capitalization remains adequate amid asset contraction and weak profitability in 2023 and 2024, with a 10.4% common equity Tier 1 (CET1)-to-risk weighted asset (RWA) ratio as of 3Q24 and a 14.7% total regulatory capital ratio due to additional loss absorption provided by hybrid capital securities.
According to the agreement with BNS, integration includes a
Davivienda Costa Rica
Ratings Driven by Parent Support: Davivienda CR's IDRs and National scale ratings are underpinned by its 'bb+' Shareholder Support Rating (SSR), which reflects Fitch's assessment of the ability and propensity of its shareholder Davivienda to provide timely support if needed. Davivienda's ability to provide support is sustained by its 'BB+' IDR.
The National Ratings reflect Davivienda's relative creditworthiness regarding the Costa Rican sovereign (BB/Stable) and other rated entities in
Scotiabank Colpatria
Ratings Driven by Shareholder Support: SBC's IDRs and national ratings are based on the support it would receive from its parent, BNS, should it be required, as reflected in the SSR of 'bbb-'. Fitch believes that the parent's propensity to support SBC relies on its ownership and operational integration between the two companies.
SBC's LT IDR is two notches above
Viability Rating: SBC's VR is driven by its standalone performance, which considers its evolving business model, negative performance affected by increased delinquency and tight capital metrics compared with those of its peers in this rating category.
Scotiabank CR
Support-Based Ratings: The ratings are derived from Fitch's assessment of the potential support that Scotiabank CR would receive from its current shareholder,
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Davivienda VR, IDRs and National Ratings
The ratings could be downgraded if asset-quality deterioration is not controlled below 4% and profitability ratio (operating profit to RWA) consistently deviate below from 1.25% over the next 12-24 months, resulting in an erosion of CET1 consistently below 10%;
A weakening of Fitch's assessment of the business or risk profiles could trigger a downgrade;
Davivienda's national scale ratings will reflect any change in local relativities.
Davivienda Costa Rica
Negative changes in Davivienda CR's IDRs and SSR would mirror a more than one-notch negative movement in
A downgrade in Davivienda's IDRs would trigger the same action on Davivienda CR's IDRs, SSR and national ratings;
Any perception by Fitch of the parent's significantly reduced propensity to support the subsidiary may trigger a downgrade of the IDRs, SSR and National Ratings.
Scotiabank Colpatria
The bank's global ratings would be downgraded upon completion of the transaction, to the level of Davivienda's ratings;
SBC's IDRs are subject to sovereign rating and/or Country Ceiling considerations and could be affected by a negative sovereign rating action;
SBC's SSR could potentially be withdrawn and the Davivenda's Government Support Rating (GSR) would also be considered for this entity;
SBC's VR could be negatively affected if the bank's asset quality continues to deteriorate, further impacting its financial performance;
National ratings could be downgraded following a multinotch downgrade on the bank's IDR, but this is not the base scenario.
Scotiabank CR
once the ownership transfer concludes, Scotiabank CR's national ratings could be downgraded if Fitch perceives a reduced willingness of Davivienda to support the bank, if needed;
once the change of ownership gets completed, a downgrade in Davivienda's IDR would put downward pressure on Scotiabank CR's national ratings.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Davivienda VR, IDRs and National Ratings
Given the limitations of the OE, a ratings upgrade is unlikely in the medium term;
Over the long term, the ratings could be upgraded by a confluence of improvement within the OE and in the bank's financial profile;
Davivienda's national ratings have no upside potential because they are at the highest level in the national rating scale.
Davivienda Costa Rica
Davivienda CR's IDRs and SSR could be upgraded one notch following a similar action on Davivienda's IDRs;
The National Ratings cannot be upgraded as they are already at the top of the rating scale.
Scotiabank Colpatria
The RWN on the bank's ratings could be removed in the event that the transaction does not close, in which case the ratings would be affirmed at their current level with a Stable Outlook;
The VR has limited upside potential in the short-to-medium term. However, a return to significantly enhanced profitability ratios, along with a CET1 ratio that is consistently above 10%, could lead to an upgrade.
The national ratings do not have upside potential as they are already at the highest possible local rating.
Scotiabank CR National Ratings
The bank's ratings are at the highest level on the national scale, therefore, they cannot be upgraded.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Davivienda's AT1 notes are rated four notches below its VR. The notching reflects the notes' higher loss severity in light of their deep subordination, along with additional nonperformance risk relative to the VR, given the high write-down trigger of CET1 at 5.125% and full discretion to cancel coupons. As such, the debt has been affirmed due to the affirmation of Davivienda's VR.
Davivienda's local subordinated debt is rated two notches below its National Long-Term Rating, encompassing two notches for loss severity (-2) and zero notches for nonperformance risk (0), given the issuance terms (plain vanilla subordinated debt).
Davivienda's local senior unsecured bonds are rated at the same level as the bank's National Long-Term Rating, considering the absence of credit enhancement or any subordination feature.
Davivienda CR's senior debt is rated at the same level as the issuer's National Long-Term Rating. Fitch believes the likelihood of default on the obligations is the same as that of the bank, given the debt lacks specific guarantees or subordination.
SBC's national rated senior unsecured debt is in line with its national rating of '
SBC's subordinated debt national rating is two notches below what Fitch considers the appropriate anchor rating, the bank's LC LT IDR of 'BBB', since this is a local-currency issue program. The two-notch difference reflects the loss severity, given the characteristics (no coupon flexibility). The global rating maps have the local national rating of '
Scotiabank CR's National Long-Term Rating of its senior unsecured debt is aligned with Scotiabank CR's National Long-Term Rating. The probability of default for these issuances is the same as that of Scotiabank CR due to the absence of specific guarantees.
Government Support Rating
The bank's Government Support rating of 'bb' reflects Davivienda's size, systemic importance and the country's historical support policy. Fitch believes there is a high probability of sovereign support.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Other Debt and Issuer Ratings: Rating Sensitivities
Davivienda's junior subordinated debt ratings will mirror any action on the bank's VR.
Davivienda's local senior debt ratings would move in line with its National Long-Term rating.
Davivienda's local subordinated debt ratings would move in line with its National Long-Term rating.
Davivienda CR's senior debt rating would move in line with its National Long-Term rating.
SBC's local subordinated debt could be downgraded by a similar action to the bank's IDR.
SBC's local senior unsecured debt could be downgraded by a similar action to the bank's LT national rating.
A downgrade in the National Long-Term Ratings of Scotiabank CR's senior unsecured debt would reflect any negative movement in the bank's National Long-Term Rating.
SBC's local senior unsecured and subordinated debt ratings are at the highest level on the national scale, therefore, they cannot be upgraded.
Scotiabank CR's senior unsecured debt ratings are at the highest level on the national scale, therefore, they cannot be upgraded.
Davivienda's GSR are potentially sensitive to any change in assumptions as to the propensity or ability of
VR ADJUSTMENTS
Davivienda's VR is one notch above the 'bb' implied rating due to the following adjustment reason: Business Profile (positive).
Davivienda's Business Profile score has been assigned above the implied score due to the following adjustment reason: Business Model (positive).
SBC: Fitch has assigned a Capitalization and Leverage score above the implied score due to the following adjustment reason: Capital Flexibility and Ordinary Support (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
SBC: Ratings are shareholder support driven (
Scotiabank CR Ratings are shareholder support driven (
Davivienda CR: Ratings are shareholder support driven (Davivienda; BB+).
ESG Considerations
Davivienda, Davivienda CR and SBC
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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