New York, April 06, 2022 -- Moody's Investors Service, ("Moody's") has today assigned a Baa3 long-term foreign currency senior debt rating to the proposed senior unsecured notes to be issued by Banco Davivienda S.A. (Davivienda). The proposed notes will be denominated and settled in USD and will mature in five to ten years. The notes will rank pari passu in right of payment with all of Banco de Davivienda's existing and future senior unsecured and unsubordinated external debts. The outlook on the debt rating is stable.
The following rating was assigned:
..Issuer: Banco Davivienda S.A.
....Senior Unsecured Regular Bond, Assigned Baa3, stable
RATINGS RATIONALE
The Baa3 senior unsecured debt rating assigned to the notes to be issued by Davivienda incorporates the bank's fundamental credit strength, evidenced by a baseline credit assessment (BCA) of ba1, plus Moody's assessment of a high probability that the bank would benefit from government support in an event of financial stress, given its meaningful market share of local deposits. This results in one notch of uplift from the bank's BCA of ba1 to the deposit and senior debt ratings of Baa3. The ba1 BCA reflects the bank's good access to core deposits and a long track record of steady, although modest, liquidity, combined with our view that the bank's profitability and capital metrics will continue to improve in 2022, supported by a favorable operating environment in Colombia.
In December 2021, Davivienda's problem loans, measured as Stage 3 loans under IFRS to total loans, improved to 4.27%, from 4.98% one year prior, but still remained slightly above pre-pandemic levels. This level of problem loans, however, remained below those of domestic peers in Colombia as of December 2021. At the same time, the bank maintained loan loss reserves at 106% of Stage 3 loans in year-end 2021, which will help to shield its capital position from any increase in asset risks through 2022, likely arising from inflationary pressures and higher rates that will strain on households' disposable income and on smaller companies' earnings.
Davivienda's capitalization, measured by Moody's preferred ratio of tangible common equity to risk weighted assets, improved 128 basis points in 2021, to 8.95% in December, from 7.67% at year-end 2020. Despite the recent increase, we expect capital to remain stable in 2022 as Davivienda's loan book expands in line with higher credit demand, as well as due to a normalization of its dividend payout policy. This trend will be compensated by continued improvement in earnings generation in 2022, which will derive mostly from higher fee income and a reduction in provision expenses. In 2021, Davivienda's ratio of net income to tangible assets stood at 0.83%, compared with 0.30% one year prior, but was still well below the 2019 level of 1.21%.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Davivienda's ratings could be upgraded if the bank's asset quality continues to improve steadily, along with a sustainable enhancement in earnings generation that could boost its current capitalization levels, that would support the acceleration of loan growth.
Davivenda's ratings could be downgraded if asset risk and profitability deteriorate and/or the bank is unable to sustain capitalization at current levels. However, the ratings would not be affected by a downgrade of the Government of Colombia's sovereign bond rating of Baa2, which is unlikely at this time given the stable outlook on the rating.
METHODOLOGY USED
The principal methodology used in this rating 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 rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
This rating is 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_1288235.
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.
Alexandre Albuquerque
Vice President - Senior Analyst
Financial Institutions Group
JOURNALISTS: 0 800 891 2518
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
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
