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Rating Action:

Moody's affirms Banco Industrial's Ba1 ratings; changes outlook to stable

20 Jun 2022

New York, June 20, 2022 -- Moody's Investors Service, ("Moody's") has today affirmed all ratings and assessments assigned to Banco Industrial, S.A. (Industrial), including the bank's long- and short-term local and foreign currency deposit ratings of Ba1 and Not Prime, respectively, as well as its Baseline Credit Assessment (BCA) of ba3. At the same time, Moody's affirmed the Ba1 foreign currency senior unsecured debt rating assigned to Industrial Senior Trust's obligations. The outlook on all ratings was changed to stable, from negative.

A full list of the affected ratings and assessments is provided at the end of this press release.

These rating actions follow the affirmation of Government of Guatemala's Ba1 bond rating and the change in outlook to stable from negative. Please refer to the related press release: "Moody's affirms Guatemala's Ba1 ratings; changes outlook to stable from negative" (https://www.moodys.com/research/--PR_465541), announced on 15 June 2022 for additional information.

At the same time, Moody's changed Guatemala's Macro Profile to Weak+ from Weak, reflecting the country's stable economy with a history of resiliency to external shocks, including its demonstrated ability to cope with the pandemic with a minimal impact to its overall credit profile. The expected economic growth for 2022 and 2023 in Guatemala will support a favorable operating environment for banks. The upgrade of the Macro Profile, however, has not resulted in a change of the banks' ratings in the country.

RATINGS RATIONALE

In affirming Industrial's ba3 BCA, Moody's acknowledges the bank's strong commercial banking franchise in Guatemala, which supports a consistent track record of good asset quality indicators and steady profitability metrics, including in 2020 and 2021. The bank's credit profile continues to benefit from a funding structure that is primarily comprised of low-cost core deposits, while its liquidity position remains steadily at strong levels. Conversely, the bank's BCA is still constrained by modest capital levels, measured by Moody's preferred ratio of tangible common equity to risk-weighted assets (TCE/RWA), which remained below other rated banks' in the region over the past three years.

In December 2021, Industrial's problem loan ratio was 0.6% and remained slightly below the average ratio of 0.83% for the past three years. The low delinquency is supported by a disciplined risk management, with conservative credit underwriting policies, as well as from the predominance of low-risk loans and a high diversified   credit portfolio. Guatemala was not severely hit by the pandemic and the economic activity has already returned to pre-pandemic growth levels, which has helped the bank to maintain comfortable level of loan loss reserves that accounted for 367.6% of problem loans in December 2021, still above the pre-pandemic level of 196.4% in year-end 2019. We expect the bank's problem loan ratio to increase slightly in the coming two quarters because of inflationary pressure in the country, although the deterioration will likely not be aggressive.

Industrial's TCE/RWA ratio was at 7.98% in December 2021, slightly below 8.25% one year prior, mainly influenced by higher credit growth in 2021. Although consistent over the last three years within a range of 8.0% to 8.3%, the low TCE/RWA ratio still poses as a challenge to the bank's standalone credit profile. While Industrial's stable margins and good profitability, with an average net income to tangible assets ratio of 1.4% in the last three years, contributes positively to capital replenishment, historically, Industrial has a large dividend distribution policy, with dividends averaging 63% of net income in the past three years – hinders further capital increase. On a regulatory basis, total capital ratio stood at 17.1% in December 2021, which was comfortably above minimum capital requirements.

The outlook change on Industrial's ratings to stable, from negative, resulted from a similar action on the Government of Guatemala's bond rating, which was affirmed at Ba1. Industrial's Ba1 local currency deposit rating and Industrial Senior Trust's Ba1 debt rating benefit from two notches of uplift from the bank's ba3 BCA, incorporating Moody's assumption of very high probability of government support in the case of need. This assumption is supported by Industrial's systemic importance as the largest bank in the country with about a quarter of market share in deposits and loans.

The affirmation of Industrial Senior Trust's rating and the change in its outlook are in line with the actions taken on Industrial's local currency deposit rating because the vehicle's obligation is unconditionally guaranteed by the bank.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Upward pressure on Industrial's BCA could emerge from a significant and sustained improvement in the bank's asset quality and profitability metrics. An upgrade of the Government of Guatemala's sovereign bond rating would likely result in a corresponding change in the bank's deposit ratings because of government support.

The bank's deposit ratings would likely be downgraded if the Government of Guatemala's bond rating were downgraded because the banks' ratings are aligned to those of the sovereign. A downgrade of the bank's deposit rating would result in a downgrade of its subordinate debt rating. In addition, the BCA could be under pressure if the bank's asset quality deteriorated on a consistent basis, causing a significant reduction in profitability and capital.

METHODOLOGY USED

The principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://ratings.moodys.com/api/rmc-documents/71997. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

LIST OF AFFECTED RATINGS

..Issuer: Banco Industrial S.A.

Affirmed ratings and assessments:

.Long term local currency deposit rating of Ba1, outlook changed to stable from negative

.Short term local currency deposit rating of Not Prime

.Long term foreign currency deposit rating of Ba1, outlook changed to stable from negative

.Short term foreign currency deposit rating of Not Prime

.Foreign currency subordinate debt rating of B1

.Foreign currency junior subordinate debt rating of B3(hyb)

.Long term local currency counterparty risk rating of Ba1

.Short term local currency counterparty risk rating of Not Prime

.Long term foreign currency counterparty risk rating of Ba1

.Short term foreign currency counterparty risk rating of Not Prime

.Baseline credit assessment (BCA) of ba3

.Adjusted baseline credit assessment of ba3

.Long term counterparty risk assessment of Ba1(cr)

.Short term counterparty risk assessment of Not Prime(cr)

Outlook action:

...Outlook, Changed To Stable From Negative

..Issuer: Industrial Senior Trust

Affirmed ratings and assessments:

.Backed long term foreign currency senior debt rating of Ba1, outlook changed to stable from negative

Outlook action:

...Outlook, Changed To Stable From Negative

REGULATORY DISCLOSURES

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 on https://ratings.moodys.com/rating-definitions.

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 issuer/deal page for the respective issuer on https://ratings.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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Rodrigo Marimon Bernales
Analyst
Financial Institutions Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 1 888 779 5833
Client Service: 1 212 553 1653

Ceres Lisboa
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 0 800 891 2518
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

No Related Data.
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