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Rating Action:

Moody's upgrades ratings for Popular and FirstBank, and affirms ratings for Banco Santander Puerto Rico; concludes review

30 Apr 2019

Toronto, April 30, 2019 -- Moody's Investors Service ("Moody's") has today taken actions on the ratings of three Puerto Rican banks. The long-term ratings for Popular, Inc., its subsidiaries (Popular) and FirstBank Puerto Rico (FirstBank) were upgraded by one notch, following the one-notch upgrades of the standalone baseline credit assessments (BCAs) for Banco Popular de Puerto Rico and Firstbank, respectively. The outlooks for Popular and FirstBank are stable.

The long-term ratings for Banco Santander Puerto Rico (BSPR) and its adjusted BCA were affirmed at their current levels, while at the same time BSPR's BCA was upgraded to ba2 from ba3. BSPR's outlook remains stable.

Moody's also affirmed the short-term ratings of all 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 actions follow the conclusion of the review for upgrade on the BCAs and ratings for Popular and Firstbank, and on the BCA for BSPR, which Moody's announced on 23 January 2019. During the review, Moody's has assessed that the operating conditions for banks in Puerto Rico have improved, reflecting better near-term economic prospects for the island, despite uncertainties in the implementation of structural economic reforms and measures to balance the Commonwealth's fiscal position.

RATINGS RATIONALE

The upgrades of the BCAs and ratings for Popular and FirstBank, and of the BCA for BSPR reflect 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 have improved Puerto Rico's bank operating environment.

The stable ratings outlooks on the ratings for Popular and FirstBank reflect Moody's view that the banks' credit fundamentals will continue to improve over the next 12 to 18 months but also take into account the uncertainties associated with the effectiveness of reconstruction and structural reforms over that time. The stable outlook on BSPR's ratings is in line with the outlook on the ratings for its ultimate US mainland parent, Santander Holdings USA, Inc..

Moody's noted that the loan performance of all three banks returned to pre-hurricane levels earlier than it previously expected. At 31 December 2018, the ratios of problem loans to gross loans for BSPR, Popular, and FirstBank were 10.3%, 7.7%, 10.8%, respectively. The banks are also well capitalized as suggested by Moody's tangible common equity to risk-weighted assets ratios for BSPR, Popular, and FirstBank at 34.3%, 15.5%, and 21.3%, 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, which could materialize if improvements in economic conditions were to reverse.

Although Moody's upgraded the baseline credit assessment of BSPR, this did not result in a ratings upgrade as Moody's aligns BSPR's ratings to its ultimate US mainland parent, Santander Holdings USA, Inc., because of cross indemnification provisions of the Federal Deposit Insurance Act. As such, BSPR's long-term ratings were affirmed at the current levels.

WHAT COULD MOVE THE RATINGS UP/DOWN

BSPR

BSPR's ba2 BCA could be upgraded if Moody's were to assess a continued sustainable improvement in Puerto Rico's bank operating environment, which it believes would lead to a further 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. Additionally, a sustained decrease in capital, liquidity or deterioration in the bank's funding profile 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 ba3 BCA could be upgraded if Moody's were to assess further 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, liquidity or a deterioration in the bank's funding profile 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 its subsidiaries because all of Popular's ratings are derived from the BCA.

FirstBank

FirstBank's b2 BCA could be upgraded if Moody's were to assess further 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, liquidity or a deterioration in in the bank's funding profile 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

..Upgrade:

.Baseline Credit Assessment, upgraded to ba2 from 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.

..Upgrade:

.Senior Unsecured Regular Bond/Debenture, upgraded to B1, Stable; previously B2, Rating Under Review

.Senior Unsecured Medium-Term Note Program, upgrade to (P)B1 from (P)B2

.Senior Unsecured Shelf, upgraded to (P)B1 from (P)B2

.Subordinate Medium-term note program, upgraded to (P)B1 from (P)B2

.Subordinate Shelf, upgraded to (P)B1 from (P)B2

.Junior Subordinate Shelf, upgraded to (P)B2 from (P)B3

.Preferred Stock Non-Cumulative, upgraded to B3(hyb) from Caa1(hyb)

..Outlook Actions:

.Outlook, changed to Stable from Rating Under Review

Issuer: Banco Popular de Puerto Rico

..Upgrade:

.Long-Term Bank Deposits, upgraded to Ba1, Stable; previously Ba2, Rating Under Review

.Local Long-Term Counterparty Risk Rating, upgraded to Ba3 from B1

.Foreign Long-Term Counterparty Risk Rating, upgraded to Ba3 from B1

.Long-Term Counterparty Risk Assessment, upgraded to Ba2(cr) from Ba3(cr)

.Adjusted Baseline Credit Assessment, upgraded to ba3 from b1

.Baseline Credit Assessment, upgraded to ba3 from b1

.Long-Term Issuer Rating, upgraded to B1, Stable; previously B2, Rating Under Review

..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 Stable from Rating Under Review

Issuer: Popular Capital Trust I

..Upgrade

....Backed Preferred Stock, upgraded to B2(hyb) from B3(hyb)

..Outlook Actions:

.Outlook, Changed to No Outlook from Rating Under Review

Issuer: Popular Capital Trust II

..Upgrade

.Backed Preferred Stock, upgraded to B2(hyb) from B3(hyb)

.Backed Preferred Shelf, upgraded to (P)B2 from (P)B3

..Outlook Actions:

.Outlook, Changed to No Outlook from Rating Under Review

Issuer: Popular North America, Inc.

..Upgrade

...Backed Senior Unsecured Shelf, upgraded to (P)B1 from (P)B2

...Backed Senior Unsecured Medium-term Note Program, upgraded to (P)B1 from (P)B2

.Backed Subordinate Shelf, upgraded to (P)B1 from (P)B2

.Backed Subordinate Medium-term Note Program, upgraded to (P)B1 from (P)B2

..Outlook Actions:

.Outlook, Changed to No Outlook from Rating Under Review

Issuer: Popular North America Capital Trust I

..Upgrade

.Backed Preferred Stock, upgraded to B2(hyb) from B3(hyb)

..Outlook Actions:

.Outlook, Changed to No Outlook from Rating Under Review

Issuer: FirstBank Puerto Rico

..Upgrade

.Long-Term Bank Deposits, upgraded to Ba3, Stable; previously B1, Rating Under Review

.Local Long-Term Counterparty Risk Rating, upgraded to B2 from B3

.Foreign Long-Term Counterparty Risk Rating, upgraded to B2 from B3

.Long-Term Counterparty Risk Assessment, upgraded to B1(cr) from B2(cr)

.Long-Term Issuer Rating, upgraded to B3, Stable; previously Caa1, Rating Under Review

.Adjusted Baseline Credit Assessment, upgraded to b2 from b3

.Baseline Credit Assessment, upgraded to b2 from 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 Stable from Rating Under Review

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.

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

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.

Jason Mercer
VP - 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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