New York, March 04, 2020 -- Moody's Investors Service ("Moody's") has today downgraded the long-term
local and foreign currency deposit ratings of Panama-domiciled
BAC International Bank, Inc (BAC) to Ba1 from Baa3, and changed
the outlook on the ratings to stable from negative. Moody's also
downgraded the bank's standalone baseline credit assessment (BCA) and
adjusted BCA to ba1 and baa3.
The following ratings and assessments were downgraded:
Issuer: BAC International Bank, Inc
Baseline credit assessment and adjusted baseline credit assessment,
to ba1 from baa3
Long term local and foreign currency deposit ratings, to Ba1 from
Baa3, outlook changed to stable from negative
Short term local and foreign currency deposit ratings, to Not Prime
from Prime-3
Long-term foreign currency counterparty risk rating, to Baa3
from Baa2
Short-term foreign currency counterparty risk rating, to
Prime-3 from Prime-2
Long-term counterparty risk assessment, to Baa3(cr) from
Baa2(cr)
Short-term counterparty risk assessment, to Prime-3(cr)
from Prime-2(cr)
Outlook, Changed to stable from negative
RATINGS RATIONALE
The downgrade of BAC's ratings reflects the relatively weak operating
conditions in the countries where it operates, which lead to the
bank's ratings to be more appropriately positioned at the Ba1 level,
despite its still strong financial fundamentals. The main challenges
have arisen in BAC's operations in Costa Rica (B2 stable),
its largest subsidiary with 28% of the loan book, and Nicaragua
(B3 stable), which nevertheless represent just 5% of the
bank's loan exposure. The sovereign ratings on these two
countries were recently downgraded by Moody's, due to the
weakening fiscal position in Costa Rica and due to weaker economic strength
and reduced access to funding in the case of Nicaragua, coupled
with still subdued economic growth, all of which leads to our assessment
of weaker operating conditions for BAC.
After this rating action, BAC continues to be rated significantly
above most of the sovereign ratings of the countries where it operates,
because nearly 56% of the bank's loan portfolio is located
at B-rated countries (Costa Rica, Honduras, El Salvador
and Nicaragua). BAC's sizeable exposure to Panama (Baa1 stable,
24% of the loan portfolio) and to a lesser extent Guatemala (Ba1
stable, 20%), the benefits from its geographical and
business diversification, and its continued strong financial performance
despite recent deterioration continues to support the bank's ratings.
BAC's consolidated nonperforming loan (NPLs) ratio rose to a still low
1.5% as of December 2019, from 1.3%
as of year-end 2018 and 1.2% in 2017. At the
same time, the NPL ratio at BAC's Costa Rican subsidiary increased
to 2.3%%, from 1.5% in 2018 and
1.3% in 2017. Consolidated loan restructurings also
spiked to 2.7% of gross loans in December 2019 from 2.4%
in 2018 and 1.4% in 2017, indicating still seasoning
asset risks. This is partly mitigated by a strong consolidated
coverage of NPLs with reserves, at 2.0 times.
Higher credit costs driven by the deterioration in asset risk have affected
BAC's profitability, but it has continued to report robust
earnings, with a return on tangible assets of 1.7%
as of December 2019, slightly lower than the 1.8%
of 2018. We expect ample net interest margins and robust fee income
to continue to support the bank's profitability.
BAC is funded by a broad base of customer deposits, consistent with
its well-established banking franchise in the region, which
significantly reduces refinancing and repricing risks. As a result,
market funding needs remain contained at around 14% of total assets.
This, combined with adequate liquidity buffers at a quarter of the
balance sheet as of December 2019, further supports BAC's financial
flexibility.
Moody's assumes a very high probability of affiliate support to BAC from
Banco de Bogotá S.A. in the case of need.
This assumption is based on BAC's relevance in Banco de Bogotá
S.A.'s regional footprint and earnings generation,
illustrated by the bank's significant contribution to the parent's profitability.
However, BAC derives no rating uplift from affiliate support because
Banco de Bogotá S.A.'s ba1 adjusted BCA is already
at the level of BAC's BCA.
Moody's does not have any particular concerns with BAC's governance,
and therefore does not apply any corporate behavior adjustment to the
bank's ratings. The company shows an appropriate risk management
framework commensurate with its risk appetite.
WHAT COULD CAUSE THE RATINGS TO MOVE UP OR DOWN
The rating could be upgraded if there were a material and sustained improvement
in the operating conditions of BAC's main countries of operation,
provided that the bank sustains its solid financial performance.
The ratings could be downgraded if there were a deterioration in the bank's
operating environment, especially in Costa Rica, leading the
bank's asset quality to sustained deterioration and if its profitability
and capitalization declined significantly.
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.
Marcelo De Gruttola
Asst Vice President - 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
