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Global Credit Research - 28 Apr 2011
New York, April 28, 2011 -- Moody's Investors Service has affirmed Banco Industrial S.A.
(BI)'s D bank financial strength rating (BFSR) and changed the outlook
to positive from stable. At the same time, Moody's
affirmed the bank's Baa3 local and Ba2 foreign currency long term
deposit ratings, with stable outlooks.
The following ratings were affirmed:
Bank financial strength rating: D, outlook changed to positive
Long term global local currency deposit rating: Baa3, stable
Short term global local currency deposit rating: Prime-3
Long term foreign currency deposit rating: Ba2, stable
Short term foreign currency deposit rating: Not Prime
Moody's said that Banco Industrial's D BFSR and Ba2 stand-alone
baseline credit assessment reflect the bank's leading franchise
in Guatemala, capable management, and supportive shareholder
group, with a successful track record of growth and diversification
during the past several years. The stand-alone ratings also
reflect the bank's resilient profit and asset quality metrics,
solid customer funding, and good liquidity and capital management.
BI continues to display a disciplined and well-executed expansion
strategy in the context of the recent financial crisis and domestic downturn,
including the opening of new branches and other points of sale and the
establishment of a new microfinance line of business. The bank's
new Salvadoran subsidiary, Banco Industrial S.A. El
Salvador will begin operations in 2011.
The change in the BFSR outlook to positive reflects the bank's increasing
franchise value and resulting improving profitability as well as BI's
favorable prospects for further growth within its home country and target
markets of Central America, a natural footprint for the bank and
its clients. BI's enhanced franchise and financial performance
also position the bank favorably relative to other banks rated D for financial
strength by Moody's. Moreover, Moody's sees positively
the repayment by the shareholders in 2010 of the holding company's
loan for the 2007 acquisition of Honduras' Banpais which has alleviated
the financial burden of both the group and the bank as its largest cash
flow generator and signals clear support of the bank's expansion
strategy by its owners.
Nevertheless, BI's capitalization ratios relative to peers
coupled with its aggressive dividend distribution policy, remain
challenges to BI's ratings at this juncture, particularly
in light of the bank's growth strategy, said Moody's.
The bank's high single borrower concentrations are also a key risk
factor that while endemic to its largely corporate lending focus represent
the potential for earnings and asset quality volatility. These
risks are mitigated in large part by the bank's strong earnings
generating ability, proactive and conservative risk management practices,
and adequate reserve coverage of problem loans.
Competition from larger regional and international banks, either
through existing operations or new acquisitions in the region, also
pose a tangible threat to BI's dominance in Guatemala and its regional
strategy. BI's entrenched positioning with the Guatemalan
corporate and retail segment and deep knowledge of and commitment to the
market as an indigenous bank represent strong mitigants to this encroachment
and remain a challenge to newcomers. Over the longer term,
however, the bank's still limited access to diverse inexpensive
long term funding sources, including reliable foreign currency funding
to support its expanding operations, could restrict its ability
to compete effectively particularly in a scenario of heightened competition.
Moody's noted that BI's Baa3 and Prime-3 long-
and short-term local currency deposit ratings incorporate two notches
of uplift from its baseline credit assessment due to the assessment of
a very high probability of systemic support for the bank's local
currency obligations because of its dominant deposit market shares and
key role as a local paying bank and tax collector. The bank's
Ba2 and Not Prime long- and short-term foreign currency
deposit ratings remain constrained by the Guatemalan country ceilings
for foreign currency deposits.
The principal methodologies used in rating Banco Industrial S.A.
were Bank Financial Strength Ratings: Global Methodology published
in February 2007, and Incorporation of Joint-Default Analysis
into Moody's Bank Ratings: A Refined Methodology published in March
2007. Other methodologies and factors that may have been considered
in the process of rating this issuer can also be found on Moody's website.
Based in Guatemala City, BI was the largest bank in the country
as of December 31, 2010, reporting total consolidated assets
of approximately US$ 6.3 billion, shareholders' equity
of $546 million, and annual net income of $95.4
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
Jeanne Del Casino
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
M. Celina Vansetti
Senior Vice President
Financial Institutions Group
Moody's Investors Service
Moody's Investors Service
Moody's affirms Banco Industrial's D BFSR; outlook changed to positive
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