New York, March 22, 2022 -- Moody's Investors Service ("Moody's") has today affirmed all long-term ratings assigned to Banco GNB Sudameris S.A. (GNB Sudameris), including its long-term local and foreign currency deposit ratings of Ba2 and its subordinated debt ratings of B1 and B2(hyb), assigned to its outstanding Tier 2 securities. Moody's also affirmed GNB Sudameris' ba3 standalone Baseline Credit Assessment (BCA), the long and short-term local and foreign currency counterparty risk ratings of Ba1 and Not Prime, respectively, as well as the counterparty risk assessments of Ba1(cr) and NP(cr), for long and short-term, respectively.
At the same time, Moody's also affirmed the B2 issuer and senior secured debt ratings assigned to Gilex Holding S.A. (Gilex Holding), GNB Sudameris' shareholder. The outlook on the bank's and on the holding company's ratings was changed to stable from negative.
A complete list of affected ratings can be found at the end of this press release.
In affirming GNB Sudameris' ratings and assessments, Moody's acknowledges the adequate performance of the bank's asset quality and earnings indicators in the past 18 months, as well as the bank's track record of ample liquidity and low reliance on market funding instruments. The change in outlook to stable, from negative, on GNB Sudameris' ratings reflects the steady performance of the bank's financial metrics in the past 12-18 months, particularly asset risk and profitability, consistent with a normalization to pre-pandemic levels.
GNB Sudameris had a problem loan ratio of 1.56% in September 2021, compared with 2.26% one year prior, and also below an average ratio of 1.70% for the 3 years before the pandemic. The recent decline in loan delinquency stemmed from a 24% annual growth in gross loans in September 2021, but also reflected the bank's portfolio mix consisting roughly one third of secured and lower risk payroll loans and mortgage financing. GNB Sudameris' asset quality has also benefited from a reduction of loans related to government relief measures against COVID-19 that accounted for 7.5% of consolidated gross loans in September 2021, considering the portfolios in Colombia, Peru and Paraguay. These loans reached 17.3% of GNB Sudameris' consolidated portfolio in September 2020. At the same time, the bank's approach of keeping a prudent volume of loan loss reserves helps to mitigate future credit impairments. In September 2021, reserves for loan losses accounted for 227% of problem loans and 3.6% of gross loans, remaining above 152% and 3.1%, respectively, in December 2019.
In the first three quarters of 2021, GNB Sudameris' profitability dropped modestly compared to pre-pandemic levels, reflecting the merger of the operations of former Banco BBVA Paraguay into Banco GNB Paraguay, a transaction that received final approval from local banking regulators in January 2022. On a consolidated basis, net income to tangible assets stood at 0.64% in September 2021, just 10 basis points below that of September 2020, while net interest margin (NIM) of 2.14% in third quarter 2021 was higher than the 4-year average annual ratio of 1.71% before the pandemic outbreak. During the next 12-18 months, GNB Sudameris' profitability will benefit from strong economic activity in Colombia, Peru and Paraguay, and from its new subsidiary in Paraguay, which has a market share of 6% in total loans and a strong operation in the commercial segment.
GNB Sudameris' capitalization, measured by Moody's preferred ratio of tangible common equity to risk-weighted assets (TCE/RWA), dropped to 6.58% in September 2021, from 7.92% one year prior. This resulted mainly from a 22% rise in RWAs that included the effect from the incorporation of former Banco BBVA Paraguay's operation into Banco GNB Paraguay. Despite the recent decline in the TCE/RWA ratio, the bank's capitalization will improve in the next outlook horizon reflecting higher earnings origination, hence, also helping to support the bank's financial profile.
GNB Sudameris' deposit ratings incorporate our assessment of a moderate probability of support from the Government of Colombia (Baa2 stable) to the bank, in case of stress. The support assumption reflects the bank's deposit market share of about 4% in Colombia. GNB Sudameris' deposit ratings receive one notch of uplift from its ba3 BCA stemming from government support.
The affirmation of Gilex Holding's ratings with a stable outlook reflects the affirmation of GNB Sudameris' ba3 BCA and the stable outlook on the bank's ratings. As a holding company, Gilex depends on the dividends of its primary operating subsidiary, GNB Sudameris, to service its debt and repay principal. As such, Gilex's senior secured debt is structurally subordinated to the obligations of GNB.
Gilex Holding's ratings also incorporate the company's high double leverage ratio, which is measured by investments in subsidiaries divided by shareholders' equity, which reflects the extent to which a holding company relies upon debt to finance its investments in subsidiaries. In September 2021, Gilex reported 127% of double leverage ratio, up from 120% in September 2020. Moody's considers double leverage in excess of 115% to be high. In the case of Gilex, this ratio leads to a rating two notches below GNB's baseline credit assessment (BCA) of ba3, one notch wider than Moody's typical notching for financial holding companies.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
GNB Sudameris' ratings could face upward pressure if the bank reports strong and steady improvement in capitalization and profitability, also supported by meaningful strengthening of asset quality metrics.
Conversely, the bank's ratings could be downgraded in case capitalization declines from current levels, and asset risk and profitability metrics deteriorate substantially and consistently over the next outlook horizon. The ratings would not be affected by a downgrade of the Government of Colombia's sovereign bond rating of Baa2.
Upward and downward pressures on Gilex Holding's ratings would be associated with similar actions on GNB Sudameris' BCA. The ratings could also face downward pressures if the group's double leverage appear likely to exceed 130% by a meaningful amount on a sustained basis and/or the interest coverage ratio decrease significantly.
ISSUERS AND RATINGS AFFECTED
The following Banco GNB Sudameris S.A.'s ratings and assessments were affirmed:
- Long term local currency deposit rating of Ba2, outlook changed to stable from negative
- Long term foreign currency deposit rating of Ba2, outlook changed to stable from negative
- Long-term global foreign currency subordinated debt rating of B1
- Long-term global foreign currency subordinated debt rating of B2(hyb)
- Long term local currency counterparty risk rating of Ba1
- Long term foreign currency counterparty risk rating of Ba1
- Baseline Credit Assessment of ba3
- Adjusted Baseline Credit Assessment of ba3
- Long-term counterparty risk assessment of Ba1(cr)
- Short term local currency deposit ratings of Not Prime
- Short term foreign currency deposit rating of Not Prime
- Short term local currency counterparty risk rating of Not Prime
- Short term foreign currency counterparty risk rating of Not Prime
- Short term counterparty risk assessment of Not Prime(cr)
- Outlook, changed to Stable from Negative
The following Gilex Holding S.A.'s ratings were affirmed:
- Long-term global local currency issuer rating of B2, outlook changed to stable from negative
- Long-term global foreign currency senior secured rating of B2, outlook changed to stable from negative
- Outlook, changed to stable from negative
The principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
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Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
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