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Rating Action:

Moody's places ratings for Popular and FirstBank on review for upgrade; affirms ratings for Banco Santander Puerto Rico

23 Jan 2019

Toronto, January 23, 2019 -- Moody's Investors Service ("Moody's") has today taken action on the ratings of three Puerto Rican banks. The long-term ratings and standalone baseline credit assessments (BCAs) for Popular, Inc. and its subsidiaries (Popular), and FirstBank Puerto Rico (FirstBank) were placed on review for upgrade. The long-term ratings for Banco Santander Puerto Rico (BSPR) and its adjusted BCA were affirmed while at the same time BSPR's ba3 BCA was placed on review for upgrade. BSPR's ratings outlook remains stable. Moody's also affirmed the short-term ratings of all the three Puerto Rican banks and their subsidiaries.

A complete list of affected ratings can be found at the end of this press release.

The rating action was prompted by Moody's assessment that the operating conditions of banks in Puerto Rico have improved, reflecting better near-term economic prospects for the island economy despite uncertainties in the implementation of structural economic reforms and measures to balance the Commonwealth's fiscal position.

RATINGS RATIONALE

The review for upgrade reflects Moody's view that Puerto Rican economic prospects have improved since Hurricane Maria in 2017. Moody's believes anticipated federal reconstruction funds from the Government of the United States of America (Aaa stable) and structural reforms proposed by the Federal Oversight and Management Board for Puerto Rico will improve Puerto Rico's bank operating environment in the medium- to long-term.

Moody's also noted that the loan performance of all three banks returned to pre-hurricane levels earlier than it previously expected. At 30 September 2018, the ratios of problem loans to gross loans for BSPR, Popular, and FirstBank were 10.0%, 7.9%, 11.1%, respectively. The banks are also well capitalized with Moody's tangible common equity to risk-weighted assets ratios for BSPR, Popular, and FirstBank at 31.4%, 14.6%, and 20.9%, respectively, as at the same reporting date. These capital levels are above the US mainland regional bank average and provide a significant cushion to buffer unexpected credit losses.

During the review, Moody's will assess the extent to which the banks' standalone credit profiles may benefit from the improvement in operating conditions. Higher BCAs following the completion of the review could result in upgrades of the ratings for Popular and FirstBank, which have also been placed on review for upgrade. However, a higher BCA for BSPR is unlikely to lead to a higher adjusted BCA, and thus a long-term ratings upgrade, as Moody's aligns BSPR's ratings to Santander Bank N.A, because of cross indemnification provisions of the Federal Deposit Insurance Act. As such, BSPR's long-terms ratings were affirmed at the current levels.

WHAT COULD MOVE THE RATINGS UP/DOWN

BSPR

BSPR's ba3 BCA could be upgraded if Moody's were to assess a sustainable improvement in Puerto Rico's bank operating environment, which it believes would lead to a reduction in problem loans, sustained improvement in profitability and/or liquidity. BSPR's ratings could be upgraded following an upgrade of the standalone credit assessment of its affiliate support providers, which would result in a higher adjusted BCA.

BSPR's BCA could be downgraded if Moody's were to assess a deterioration in bank operating conditions in Puerto Rico. It could also be downgraded if Moody's believes the risk appetite of BSPR has increased, for example because of above-peer average loan growth or a notable increase in lending concentrations. Additionally, a sustained decrease in capital could lead to a downgrade in the BCA. BSPR's ratings could also be downgraded following a downgrade of either of its affiliate support providers, which would lower its Adjusted BCA, from which its ratings are derived.

Popular

Banco Popular de Puerto Rico's b1 BCA could be upgraded if Moody's were to assess a sustainable improvement in Puerto Rico's bank operating environment, which it believes would lead to a reduction in problem loan levels, sustained improvement in profitability, capitalization and/or liquidity. A higher BCA for Banco Popular de Puerto Rico would likely lead to rating upgrades.

The standalone BCA of Banco Popular de Puerto Rico could be downgraded if Moody's were to assess a deterioration of bank operating conditions in Puerto Rico. It could also be downgraded if Moody's believes Popular's risk appetite has increased, for example because of above-peer average loan growth or a notable increase in lending concentrations. Additionally, a sustained decrease in capital could lead to a downgrade in the BCA. A lower BCA would likely lead to ratings downgrade for Banco Popular de Puerto Rico and Popular Inc and it subsidiaries because all of Popular's ratings are derived from the BCA.

FirstBank

FirstBank's b3 BCA could be upgraded if Moody's were to assess a sustainable improvement in Puerto Rico's bank operating environment, which it believes would lead to a reduction in problem loan levels, sustained improvement in profitability, capitalization and/or liquidity. A higher BCA would likely lead to a rating upgrade.

FirstBank's BCA could be downgraded if Moody's were to assess a deterioration in bank operating conditions in Puerto Rico. It could also be downgraded if Moody's believes the risk appetite of FirstBank has increased, for example because of above-peer average loan growth or a notable increase in lending concentrations. Additionally, a sustained decrease in capital could lead to a downgrade in the BCA. A lower BCA would likely lead to a rating downgrade for FirstBank.

The rating actions were as follows:

Issuer: Banco Santander Puerto Rico

..Review for Upgrade:

.Baseline Credit Assessment, currently ba3

..Affirmations:

.Adjusted Baseline Credit Assessment, affirmed at baa1

.Long-Term Bank Deposits, affirmed at A2, Stable

.Short-Term Bank Deposits, affirmed at P-1

.Senior Unsecured Bank Note Program, affirmed at (P)Baa1

.Foreign Short-Term Counterparty Risk Rating, affirmed at P-2

.Local Short-Term Counterparty Risk Rating, affirmed at P-2

.Local Long-Term Counterparty Risk Rating, affirmed at Baa1

.Foreign Long-Term Counterparty Risk Rating, affirmed at Baa1

.Long-Term Counterparty Risk Assessment, affirmed at A3(cr)

.Short-Term Counterparty Risk Assessment, affirmed at Prime-2(cr)

.Long-Term issuer rating, affirmed at Baa1, Stable

.Local Short-Term Bank Note Program, affirmed at (P)P-2

..Outlook Actions:

.Outlook, Remains Stable

Issuer: Popular, Inc.

..Review for Upgrade:

.Senior Unsecured Regular Bond/Debenture, currently B2, Rating Under Review; previously B2, stable

.Senior Unsecured Medium-Term Note Program, currently (P)B2

.Senior Unsecured Shelf, currently (P)B2

.Subordinate Medium-term note program, currently (P)B2

.Subordinate Shelf, currently (P)B2

.Junior Subordinate Shelf, currently (P)B3

.Preferred Stock Non-Cumulative, currently Caa1(hyb)

..Outlook Actions:

.Outlook, Changed to Rating Under Review from Stable

Issuer: Banco Popular de Puerto Rico

..Review for upgrade:

.Long-Term Bank Deposits, currently Ba2, Rating Under Review; previously Ba2, Stable

.Local Long-Term Counterparty Risk Rating, currently B1

.Foreign Long-Term Counterparty Risk Rating, currently B1

.Long-Term Counterparty Risk Assessment, currently Ba3(cr)

.Adjusted Baseline Credit Assessment, currently b1

.Baseline Credit Assessment, currently b1

.Long-Term Issuer Rating, currently B2, Rating Under Review; previously B2, Stable

..Affirmations:

.Short-Term Bank Deposits, affirmed at Not Prime

.Local Short-Term Counterparty Risk Rating, affirmed at Not Prime

.Foreign Short-Term Counterparty Risk Rating, affirmed at Not Prime

.Short-Term Counterparty Risk Assessment, affirmed at Not Prime(cr)

..Outlook Actions:

.Outlook, Changed to Rating Under Review from Stable

Issuer: Popular Capital Trust I

..Review for Upgrade

....Backed Preferred Stock, currently B3(hyb)

..Outlook Actions:

.Outlook, Changed to Rating Under Review from No Outlook

Issuer: Popular Capital Trust II

..Review for Upgrade

.Backed Preferred Stock, currently B3(hyb)

.Backed Preferred Shelf, currently (P)B3

..Outlook Actions:

.Outlook, Changed to Rating Under Review from No Outlook

Issuer: Popular North America, Inc.

..Review for Upgrade

.Backed Senior Unsecured Shelf, currently (P)B2

.Backed Senior Unsecured Medium-term Note Program, currently (P)B2

.Backed Subordinate Shelf, currently (P)B2

.Backed Subordinate Medium-term Note Program, currently (P)B2

..Outlook Actions:

.Outlook, Changed to Rating Under Review from No Outlook

Issuer: Popular North America Capital Trust I

..Review for Upgrade

.Backed Preferred Stock, currently B3(hyb)

..Outlook Actions:

.Outlook, Changed to Rating Under Review from No Outlook

Issuer: FirstBank Puerto Rico

..Review for Upgrade

.Long-Term Bank Deposits, currently B1, Rating Under Review; previously B1, Stable

.Local Long-Term Counterparty Risk Rating, currently B3

.Foreign Long-Term Counterparty Risk Rating, currently B3

.Long-Term Counterparty Risk Assessment, currently B2(cr)

.Long-Term Issuer Rating, currently Caa1, Rating Under Review; previously Caa1, Stable

.Adjusted Baseline Credit Assessment, currently b3

.Baseline Credit Assessment, currently b3

..Affirmations

.Short-Term Bank deposits, affirmed at Not Prime

.Local Short-Term Counterparty Risk Rating, affirmed at Not-Prime

.Foreign Short-Term Counterparty Risk Rating, affirmed at Not-Prime

.Short-Term Counterparty Risk Assessment, affirmed at Not-Prime(cr)

..Outlook Actions:

.Outlook, Changed to Rating Under Review from Stable

The principal methodology used in these ratings was Banks published in August 2018. 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 or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

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

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.

Jason Mercer
Vice President - Senior Analyst
Financial Institutions Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
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 Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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