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Rating Action:

Moody's affirms Banco de Credito del Peru's ratings; outlook positive

 The document has been translated in other languages

25 Nov 2019

NOTE: On December 18, 2019, the press release was corrected as follows: The last sentence of the first paragraph was changed to: “At the same time, Moody's affirmed Banco de Crédito del Peru, Panama Branch Baa1 senior unsecured debt rating in foreign currency, its Baa3 foreign currency subordinated debt rating, the long and short term CRR in foreign currency of A3 and P-2, and its long and short term CRA of A3(cr) and P-2(cr).” and in the debt list for Banco de Crédito del Peru, Panama Brach the fourth paragraph was changed to: “Long- and Short-Term Counterparty Risk Rating in foreign currency of A3 and P-2”. Revised release follows.

New York, November 25, 2019 -- Moody's Investors Service ("Moody's") has today affirmed the ratings and assessments of Banco de Crédito del Peru (BCP). Moody's affirmed the Baa1 and P-2 global long- and short-term local and foreign currency deposit ratings, its Baa1 senior unsecured debt rating in foreign currency, and the baa2 baseline credit assessment (BCA) and adjusted BCA. BCP's A3 and P-2 long- and short-term counterparty risk rating (CRR) and its A3(cr) and P-2(cr) long- and short-term counterparty risk assessment (CRA) were also affirmed. At the same time, Moody's affirmed Banco de Crédito del Peru, Panama Branch Baa1 senior unsecured debt rating in foreign currency, its Baa3 foreign currency subordinated debt rating, the long and short term CRR in foreign currency of A3 and P-2, and its long and short term CRA of A3(cr) and P-2(cr).

The outlook on the ratings was changed to positive, from stable.

The following ratings of Banco de Crédito del Peru were affirmed:

- Long and Short-term Foreign and Local Currency Deposit ratings of Baa1, with positive outlook, and P-2

- Foreign Currency Senior Unsecured Debt rating of Baa1, with positive outlook

- BCA of baa2

- Adjusted BCA of baa2

- Long- and Short-Term Counterparty Risk Assessment of A3(cr) and P-2(cr)

- Long- and Short-Term Counterparty Risk Rating in local and foreign currency of A3 and P-2

Outlook, changed to positive from stable

The following ratings of Banco de Crédito del Peru, Panama Brach were affirmed:

- Foreign Currency Senior Unsecured Debt rating of Baa1, with positive outlook

- Foreign Currency Subordinated Debt rating of Baa3

- Long- and Short-Term Counterparty Risk Assessment of A3(cr) and P-2(cr)

- Long- and Short-Term Counterparty Risk Rating in foreign currency of A3 and P-2

Outlook, changed to positive from stable

RATINGS RATIONALE

The affirmation of BCP's BCA and ratings incorporates the bank's sound recurring earnings generation derived from leading position and pricing power in various market segments, its robust capitalization, manageable credit cost and efficient cost control. BCP's ratings also incorporate a stable asset risk profile, which reflects its well- diversified loan book, and its highly granular deposit base.

The Baa1 deposit rating benefits from one notch of uplift from its adjusted BCA of baa2 and captures Moody's assessment of the high probability that the government of Peru would provide support in case of stress. Our assessment derives from BCP's importance as the largest deposit taker in the system and the material systemic consequences of an unsupported failure.

BCP's sustained core profitability reflects its strong pricing power and diversified loan mix, which yield robust net interest income in combination with a broad base of stable and inexpensive core deposits. This supports ample net interest margin of 5.5% and annualized net income equal to a robust 2.6% of tangible assets in the nine months to September 2019, up from 2.4% in December 2018, which is strong compared with the 2.3% median for similarly rated Latin American banks. Profitability is also supported by the bank's low cost to income ratio, which declined to 41.3% in September 2019 from an already low 44% in 2018. Credit cost have been largely flat and below its domestic and regional peers' median, at 25% of pre-provision income, despite the expansion into consumer lending, which tends to be a riskier asset class.

Supported by consistently strong profitability, moderate loan growth and stable dividend payout ratio, BCP's Moody's adjusted capitalization ratio, measured as tangible common equity relative to risk weighted assets, has been stable at around 12.3%. We expect BCP to maintain its strong capital base as its profitability continues to exceed capital consumption providing good loss absorption capacity and supporting loan expansion in the coming quarters.

In regard to asset quality, BCP's non- performing loan ratio of 3.1% in 3Q2019 (measured as 15 past due loans, as per Peruvian regulation) has weakened mildly from 2.94% at year-end 2018 influenced by a slight deterioration in commercial and corporate loans as a result of the decelerating Peruvian economy. Positively, BCP has reduced its dollar denominated loan book to one third of total loans, mostly to dollar generating corporates. Reserve coverage remains robust at 141% of non-performing loans, evidencing prudent risk management practices and disciplined origination.

BCP also benefits from a large and growing base of granular low-cost core deposits, which account for two thirds of total deposits, limiting the bank's exposure to more volatile wholesale funding. BCP has engaged in managing its liabilities to benefit from low international interest rates on some of its cross border obligations, lowering its overall funding cost and extending their maturities, a credit positive. The bank's overall loan to deposit ratio has been relatively stable at 104%, but its deposits dollarization level continues to decline to reach 43% in 3Q2019. In addition, the bank's liquid resources remain relatively high, with liquid banking assets comprising 30.7% of tangible banking assets as of September 2019, largely invested in high-quality instruments.

The positive outlook on BCP's ratings incorporates the bank's sustainable profitability that will continue to replenish its solid capital base while maintaining modest asset risk and an improved efficiency profile. In a scenario of declining interest rates and moderate economic growth, we expect BCP to maintain its disciplined loan origination as it changes its loan mix by expanding into high-yielding assets and seeks to increase other non-interest income contribution to offset potential pressures on margins. Expense control remains a priority because cost savings will ensure BCP realizes its planned investments in technology and digital transformation that have the potential to generate increasing business volumes, broadening the business scope and furthering client reach, a credit positive.

Moody's believes BCP's exposure to environmental risks is low, consistent with its general assessment for the global banking sector. BCP's exposure to social risks is moderate, consistent with Moody's general assessment for the global banking sector. As well, governance risks are largely internal rather than externally driven. Moody's does not have any particular concerns with BCP's governance.

WHAT COULD CHANGE THE RATING UP/DOWN

As indicated by the positive outlook, an upgrade of BCP's ratings is likely if the bank continues to report strong profitability to replenish capital while avoiding asset quality deterioration and limiting the dependence on market funding.

However, the bank's ratings could be affirmed at the current level and the outlook stabilized if BCP's capital or profitability weakens as a result of asset risk deterioration.

The principal methodology used in these ratings was Banks Methodology published in November 2019. 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, 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.

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.

Maria Valeria Azconegui
Vice President - Senior Analyst
Financial Institutions Group
Moody's Latin America ACR
Ing. Butty 240
16th Floor
Buenos Aires City C1001AFB
Argentina
JOURNALISTS: 1 800 666 3506
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

No Related Data.
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