New York, December 21, 2018 -- Moody's Investors Service ("Moody's") has today affirmed all of BBVA Colombia
S.A. ("BBVA Colombia") ratings, including its Baa2
deposit rating and its Baa3 subordinated debt rating. The outlook
remains stable.
The following BBVA Colombia's ratings and assessments were affirmed,
outlook remains stable
- Long term local currency deposit rating of Baa2, stable
outlook
- Long term foreign currency deposit rating of Baa2, stable
outlook
- Short term local currency deposit rating of Prime-2
- Short term foreign currency deposit rating of Prime-2
- Long-term global foreign currency subordinated debt rating
of Baa3
- Long term local currency counterparty risk rating of Baa1
- Long term foreign currency counterparty risk rating of Baa1
- Short term local currency counterparty risk rating of P-2
- Short term foreign currency counterparty risk rating of P-2
- Adjusted Baseline Credit Assessment of baa2
- Baseline Credit Assessment of baa3
- Long-term counterparty risk assessment of Baa1(cr)
- Short-term counterparty risk assessment of Prime-2(cr)
- Outlook stable
RATINGS RATIONALE
The ratings action follows the bank's publication of its third-quarter
2018 financial results. The affirmations reflect the bank's
conservative risk management, low reliance on market funds,
and stable liquidity, as well stronger bottom line results supported
by lower credit costs and high margins. While asset quality continues
to be lower than historical levels, asset risks have started to
recede as Colombia's economy recovers. That said, the
bank's low core capitalization levels counterbalance these positive
considerations.
In the nine months through September 2008, net income rebounded
to a moderate 1.2% of tangible assets on an annualized basis,
having fallen to just 0.85% in 2017 due to higher credit
costs related to asset quality deterioration in commercial and consumer
portfolios amid a period of moderate loan growth in Colombia. Credit
costs fell from a peak of 2.7% of gross loans in 2017 to
1.9% in the first three quarters of 2018. Nevertheless,
they remained well above the average of just 1.25% from
2013 to 2016, due in large part to the bank's decision to
provision the remaining portion of its large exposure to Electrificadora
del Caribe S.A. E.S.P. (Electricaribe,
unrated), a distressed electricity distribution company that has
been was seized by Colombia's government. Repayment of Electrocaribe´s
liabilities with the Colombian banking sector, including BBVA Colombia,
have been suspended since 2016.
While delinquencies have continued to climb this year, reaching
3.7% of gross loans as of September, going forward,
we expect them to decline as the pace of non-performing loan origination
has been decreasing in recent periods in both the commercial and consumer
portfolio. Moody's expects the trend to continue as Colombia's
economy recovers and borrowers' repayment capacity improves.
Unlike most other large Colombian lenders, BBVA Colombia has no
large problematic exposures except for Electricaribe. Moreover,
its 20 largest exposures overall equaled just 1.4x tangible common
equity (TCE) in September 2018, and it had virtually no related-party
lending. Rather, the rise in its delinquencies has been driven
by its above average exposure to consumer lending. which represented
almost 60% of its total loans as of September 2018, making
the bank more vulnerable to the economic cycles. At the same time,
this risk is partially counterbalanced by the bank's focus on lower-risk
products because mortgage loans with reduced loan-to-value
ratios represent about 40% of exposure to households and payroll
loans absorb an additional 30%.
The bank´s rating continues to benefit from a very small reliance
on market funding, which totaled just 6.6% of the
tangible banking assets as of September 2018. This limits the bank´s
vulnerability to rollover risk during periods of market volatility.
While funding is largely based on core deposits, however,
just 25% of deposits are sourced from individuals, with the
balance from a combination of non-financial corporates, institutional
investors and the public sector, which are potentially less stable
that retail depositors. Although liquidity levels are not particularly
high, they have remained very stable at between 18.5%
and 22% of tangible banking assets since 2013.
The bank´s chief credit challenge is its low level of capital,
with tangible common equity equal to just 8.4% of the bank's
adjusted risk weighted assets (TCE/RWA) as of September 2018, down
from 9.2% a year earlier but just slightly below the 8.8%
average from 2013 to 2017. That said, Moody's expects
that the bank will build larger capital buffers as Colombia gradually
implements new minimum capital requirements and buffers in line with Basel
III guidelines.
BBVA Colombia´s deposit rating also continues to benefit from a
notch of uplift because of the high probability that it will receive financial
support from its parent, Banco Bilbao Vizcaya Argentaria,
S.A.(BBVA Spain, deposits A2 stable, Baseline
Credit Assessment [BCA] baa2). This reflects BBVA Colombia´s
strategic importance to its parent, given the Colombian bank's
size, scale and expected growth.
WHAT COULD CHANGE THE RATING -- DOWN/UP
BBVA Colombia's standalone BCA and its subordinated debt rating could
experience upward pressure should the bank exhibit substantial and sustained
improvement in some combination of capitalization, profitability,
and asset quality. However, a higher BCA would not lead to
a higher deposit rating because the rating is already in line with BBVA
Spain's baa2 BCA and Government of Colombia´s Baa2 sovereign
rating.
BBVA Colombia's standalone BCA could be lowered if the recent recovery
in profitability proves unsustainable, delinquencies continue to
rise, and/or capitalization continues to fall. However,
a lower BCA would not lead to a lower deposit rating, given the
high probability of support from both the bank´s affiliate bank
in Spain and from the Colombian government.
The principal methodology used in these ratings was Banks published in
August 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Diego Kashiwakura
Vice President - Senior Analyst
Financial Institutions Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653
M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
