Fitch Ratings has affirmed
Fitch has also affirmed the National Long-Term Ratings of
Key Rating Drivers
Ratings Based on Intrinsic Creditworthiness:
Solid Risk and Business Profile: The ratings also consider the bank's strong asset quality ratios, which are underpinned by
Sound Asset Quality: BICE's impaired loans ratio, which reached 0.83% as of YE 2022 (2019-2022 average: 0.56%), is commensurate with the implied 'bbb' category. Fitch assesses the bank's asset quality KRD score above its implied level at 'a-' due to higher collateral and reserves and historical and future metrics. BICE's total reserve coverage including additional voluntaries provisions of impaired loans (2.7x at YE 2022) is also strong relative to a peer average of 2.0x. The bank's small size and business model, which is focused on corporate and large companies, results in modest portfolio concentrations with the 20 largest debtors representing about 9% of gross loans and 0.87x common equity as of YE 2022 though this level is low compared with local peers.
Diversified Revenue Stream: BICE's more diversified operating revenues relative to its domestic peers, higher net interest margin, historically low credit impairment and tight cost control have underpinned the bank's operating profit-to-risk-weighted assets (RWA) ratio, which averaged 1.8% for 2022-2019 and stood at 2.5% at YE 2022, commensurate with its implied 'bbb' category score for earnings and profitability. Fitch expects this trend in profitability to decelerate in 2023 as inflation and interest rates begin to slowly decline and credit costs gradually increase or if the recession is deeper or longer than currently anticipated.
Capitalization Challenge: Fitch assesses BICE's capitalization score above its implied score at 'bbb-' based on the entity's low risk profile and its ample reserve coverage. BICE's common equity Tier 1 (CET1) ratio improved 127 basis points to 10.6% as of YE 2022. This reflected recurrent internal capital generation based on the bank's low dividend payout, averaging 29.6% over the last four years. BICE's additional voluntary LLRs, accounting for 0.83% of RWAs, also provide a buffer in the event of unexpected losses (total loss absorption capacity: 11.4%) while its total regulatory capital ratio stood at 15.3% at YE 2022.
Diversified, Stable Funding Mix: BICE's funding is predominantly wholesale though conservative liquidity management helps to mitigate this risk. BICE's loans-to-customer deposits ratio averaged 129% over the past four years and is commensurate with a 'bb' implied score. Fitch adjusted the funding and liquidity score to 'bbb+' considering the bank's access to stable long-term funding and good liquidity. BICE's consolidated liquidity coverage ratio stood at 140% at 4Q22, while its net stable funding ratio exceeded 100% as of the same date. Deposit concentration is moderate, with the 20 largest time deposits accounting for about 25% of total deposits as of YE 2022.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
VR, IDRs and National Ratings
In addition,
National ratings are also sensitive to a weakening of creditworthiness relative to other Chilean issuers.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
VR, IDRs and National Ratings:
A potential upgrade is limited given BICE's relatively modest domestic franchise and the current operating environment.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Senior Unsecured Debt: Fitch rates BICE's senior unsecured bonds at the same level as the bank's Long-Term IDRs and National Long-Term Ratings of 'BBB+' and 'AA+(cl)', respectively, as the likelihood of default of the senior debt is the same as that of the issuer.
Junior Subordinated Debt: Fitch rates
Subordinated Debt: Fitch rates BICE's National scale subordinated debt at 'AA-(cl)', two notches below its National Long-Term Rating. The two-notch difference considers the loss severity due to its subordinated nature (after default), and no additional notching for non-performance risk given the subordinated debt's gone concern feature (triggered after the point of non-viability).
Government Support Rating: BICE's 'bb+' Government Support Rating (GSR) reflects the bank's small franchise within the Chilean financial system (3.5% of total customer deposits as of
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Senior Unsecured Debt:
National Debt Ratings: Senior, subordinated and junior subordinated National debt ratings would generally move together with the bank's Long-Term National Rating. The subordinated debt would remain two notches below the bank's National Long-Term Rating while the junior subordinated debt would remain three notches below the bank's National Long-Term Rating.
Government Support Rating:
SUBSIDIARIES & AFFILIATES: KEY RATING DRIVERS
Fitch has affirmed
The National ratings of
The rating of
SUBSIDIARIES AND AFFILIATES: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade
The bank holding company's ratings could also be downgraded in the event of a material and sustained increase in
Additionally, a change in the dividend flows from the operating company or a material increase in debt levels at the holding company that affects its debt coverage ratios could also be detrimental to its ratings;
The rating of
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Any upgrade would be linked to a similar rating action on
VR ADJUSTMENTS
The VR of 'bbb+' has been assigned above the 'bbb' implied VR due to the following adjustment reasons: Risk Profile (positive);
The Business Profile score of 'bbb' has been assigned above the 'bb' category implied score due to the following adjustment reasons: Strategy and Execution (positive);
The Asset Quality score of 'a-' has been assigned above the 'bbb' category implied score due to the following adjustment reasons: Historical and Future Metrics (positive) and Collateral and Reserves (positive);
The Capitalization and Leverage score of 'bbb-' has been assigned above the 'bb' category implied score due to the following adjustment reasons: Reserve Coverage and Asset Valuation (positive) and Risk Profile and Business Model (positive);
The Funding & Liquidity score of 'bbb+' has been assigned above the 'bb' category implied score due to the following adjustment reasons: Non-Deposit Funding (positive).
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
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
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This 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. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
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