Fitch Ratings has affirmed
Fitch has also affirmed BICE's National Long-Term Ratings and its holding company,
Key Rating Drivers
Prudent Risk Profile Highly Influenced on Ratings:
Consistent Business Profile: Fitch's assessment of
Conservative Risk Profile: The bank's strong asset quality ratios are underpinned by
Sound Asset Quality: Fitch expects BICE's asset quality metrics to remain stable and better than closest peers. BICE's impaired loans ratio, which reached 0.66% as of YE 2023 (2020-2023 average: 0.64%), is commensurate with the implied 'bbb' rating category. Fitch assesses the bank's asset quality rating score above its implied level at 'a-' due to higher collateral and reserves. BICE's total reserve coverage including additional voluntaries provisions of impaired loans (3.1x at YE 2023) is also strong relative to a peer average of 1.7x. Loan portfolio concentrations is low with the 20 largest debtors representing about 8% of gross loans and 0.75x common equity as of February 2024).
Diversified and Improved 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 positive trend in profits. The operating profit-to-risk-weighted assets (RWA) ratio, which averaged 2.0% for 2020-2023 and stood at 2.3% at
Capitalization Benefited from Low Growth: Fitch assesses BICE's capitalization score above its implied score at 'bbb-' based on the entity's low risk profile with consistent earning generation. BICE's CET1 ratio improved 55 basis points to 11.1% as of YE 2023 due to more cautious loans' growth. The bank's moderate dividend pay-out, averaging 33% over the past four years. Fitch's forecasts BICE's CET1 to be maintained above 10.5% within the rating horizon considering a higher pay-out ratio (55% for 2024 and 50% in 2025-2027). In addition to the conservation and countercyclical buffers to be fully loaded in 2024, BICE will have a capital charge to comply with Basel III Pillar 2 of 0.5% of its RWA to be constituted in 25% at
Diversified, Stable Funding Mix: BICE's funding is predominantly wholesale, although conservative liquidity management helps to mitigate this risk. BICE's loans-to-customer deposits ratio averaged 135% 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 284% at 1Q24 in advance of the payment of central bank facilities, while its net stable funding ratio (NSFR) rose 98% as of the same date. Deposit concentration is moderate, retail-costumers deposits represented about 41% of total and with the 20 largest depositors accounting for about 27% of total customer deposits as of
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 considering BICE's highly ratings given its moderate domestic franchise and the current OE.
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. The National Long-Term mortgage note Rating (senior secured) of 'AA+(cl)' is based on
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 nonviability).
Government Support Rating: BICE's 'bb+' Government Support Rating (GSR) reflects the bank's small franchise within the Chilean financial system (about 3.5% of total customer deposits as of
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Senior Unsecured Debt:
National Debt Ratings: Senior, senior secured, 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
The National ratings of
The announcement merger agreement is expected to occur at the BHC level and, in Fitch's view, it could be slightly positive from a credit perspective, as it could enhance the overall business and risk profile of the combined entities, without materially negatively affecting the resulting financial profile. However, the final impact on both BHCs and their operating subsidiaries cannot be assessed entirely with the available information at present.
Fitch's preliminary base case is that the common equity double leverage (defined as equity investments in subsidiaries plus BHC intangibles, divided by BHC common equity) of the combined BHC would be slightly above 120%, considering the proposed structure of the transaction, although it would converge below this figure with the next two years once the transaction is completed.
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' rating 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: 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: Nondeposit Funding (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
ESG Considerations
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, due to either 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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