New York, August 03, 2021 -- Moody's Investors Service ("Moody's") has downgraded all the long-term
ratings and assessments of Banco de Desarrollo de la República
de El Salvador (Bandesal) and Banco Agrícola, S.A.
(Agrícola). Bandesal's issuer rating was downgraded to Caa1
from B3 and its baseline credit assessment (BCA) to caa1 from b3.
Agrícola's deposit rating was also downgraded to B2 from B1,
BCA to caa1 from b3 and adjusted BCA to b2 from b1. At the same
time, Moody's affirmed both banks' Not Prime short term
ratings and Not Prime(cr) short term counterparty risk assessments.
The outlook on the banks' ratings remains negative.
A full list of affected ratings can be found at the end of this press
release.
The rating actions follow the announcement made by Moody's Investors Service
on 30 July 2021, that it downgraded El Salvador's sovereign bond
rating to Caa1 from B3, and maintained the negative outlook.
For additional information, please refer to the related press release:
"Moody's downgrades El Salvador's rating to Caa1, maintains negative
outlook" (https://www.moodys.com/research/--PR_450956).
RATINGS RATIONALE
The downgrade of Bandesal's and Agrícola's ratings
and assessments were prompted by the downgrade of El Salvador's sovereign
bond rating to Caa1, from B3, which mainly reflect the country's
limited market access amid a challenging debt amortization schedule beginning
in 2023, coupled with a deteriorated quality of the country's
policymaking. These risks have intensified implementation challenges
to the authorities' fiscal adjustment plans and increased uncertainty
about financing prospects. The negative outlook on the sovereign
debt rating captures the fact that the fiscal position remains vulnerable
and susceptible to financing shocks that could further jeopardize the
sovereign's repayment capacity.
Bandesal and Agrícola's BCAs continue to be constrained by
El Salvador's sovereign debt rating, considering both banks'
domestic franchises and their highly correlated financial fundamentals
to the creditworthiness of El Salvador, through the macroeconomic
and financial conditions, as well as the banking system's direct
exposure to government risk, in the form of holdings of government
bonds. Rising uncertainties about El Salvador's government finances,
which is the basis for the negative outlook on its ratings, challenges
these banks' asset risk, profitability and funding perspectives.
Bandesal's ratings incorporate the bank's good asset quality metrics,
which benefit from its preferred creditor status as the government development
bank in El Salvador. Asset risk metrics remained sound throughout
2020 and the beginning of 2021 amid the economic implications of the pandemic
and the bank's adequate level of provisions to absorb potential
credit losses. In December 2020, the total loan loss reserves
stood at 3.4% of gross loans. In addition,
despite being a government bank, Bandesal does not hold El Salvador's
sovereign debt -neither it provides direct financing to the government-
in accordance with the Salvadoran Development Bank Law. The bank's
profitability has historically been low as a result of its policy purpose
to provide long-term funding to other financial institutions to
lend to companies in the country, a low-yielding lending
activity. However, profitability metrics remained above historical
levels since 2020, benefited by improved margins on businesses.
Although most of its funding mix is provided by multilateral financial
institutions, future market access and funding facilities could
be affected by the deterioration of the sovereign's credit profile.
However, Bandesal's capitalization remains strong -with a
tangible common equity (TCE) to risk weighted assets (RWA) ratio of 50.4%
as of March 2021- supported by recent improvements in profitability
and contained dividend payments to the government.
Agrícola's B2 deposit ratings incorporate its strong profitability
that benefits from ample net interest margins derived from a broad and
inexpensive deposit base and strong footprint in the country's credit
market. With the end of deferral measures in early 2021,
the bank's asset quality metrics started to deteriorate, with
non-performing loans reaching 1.9% of gross loans
as of March 2021 from 1.1% as of 2020 year-end.
However, Agricola built conservative provisions against credit losses,
representing 2.5x NPLs or 4.8% of gross loans as
of March 2021, which will help mitigate rising asset risks.
Agrícola's capital position stood at an adequate 13.3%
TCE to RWA ratio in March 2021, supported by a moderate loan book
growth, that helped to mitigate its high shareholders' payout
ratio close to 100% of its net income.
Bandesal's Caa1 long-term issuer rating is currently placed at
the level of the sovereign debt rating, while Agrícola's
B2 deposit rating remains two notches above the Caa1 sovereign debt rating,
as its adjusted BCA is uplifted by Moody's assessment of a high probability
of affiliate support from its parent bank Bancolombia S.A.
(Baa2 negative, ba1). Agrícola is one of Bancolombia's
most important subsidiaries in Central America.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade is unlikely for Bandesal and Agrícola at this time because
both banks' ratings have negative outlookss. However,
the outlooks could be changed to stable following a stabilization of the
Government of El Salvador's sovereign rating outlook, provided that
operating conditions for the banks stabilized and their financial profiles
remained sound.
Conversely, downward pressure on these banks' ratings would occur
following any additional downgrade of the sovereign rating, that
could reflect potential pressures on banks' operating environment in light
of the strong interlinkages between the banks' creditworthiness and that
of the government.
ISSUERS AND RATINGS AFFECTED
..Issuer: Banco de Desarrollo de la República
de El Salvador
Downgrades
.Baseline credit assessment and adjusted baseline credit assessment,
to caa1 from b3
.Long-term foreign currency issuer rating, to Caa1
from B3, outlook remains negative
.Long-term foreign currency counterparty risk rating,
to B3 from B2
.Long-term counterparty risk assessment, to B3(cr)
form B2(cr)
Affirmations:
.Short-term foreign currency counterparty risk rating at
Not Prime
.Short-term counterparty risk assessment at Not Prime(cr)
Outlook action:
. Outlook remains negative
..Issuer: Banco Agrícola, S.A.
Downgrades
.Baseline credit assessment, to caa1 from b3
.Adjusted baseline credit assessment, to b2 from b1
.Long-term foreign currency deposit rating, to B2
from B1, outlook remains negative
.Long-term foreign currency counterparty risk rating,
to B2 from B1
.Long-term counterparty risk assessment, to B2(cr)
from B1(cr)
Affirmations:
.Short-term foreign currency deposit rating at Not Prime
.Short-term foreign currency counterparty risk rating at
Not Prime
.Short-term counterparty risk assessment at Not Prime(cr)
Outlook action:
. Outlook remains negative
RATING METHODOLOGY
The principal methodology used in these ratings was Banks Methodology
published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
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 at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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.
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 www.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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.
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 www.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 www.moodys.com.
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
Vice President - Senior Analyst
Financial Institutions Group
JOURNALISTS: 1 800 666 3506
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
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