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Fitch Takes Actions on Guatemalan Banks Following Sovereign Downgrade

Fitch Ratings - New York - 09 Apr 2020: Fitch Ratings has taken various negative rating actions on five Guatemalan banks and three foreign related-companies following the downgrade of Guatemala's sovereign rating to 'BB-' from 'BB' and the downgrade of the country ceiling to 'BB' from 'BB +'. (See "Fitch Downgrades Guatemala to 'BB-'; Outlook Stable", dated April 3, 2020, at www.fitchratings.com.)

Fitch has downgraded the foreign currency long-term Issuer Default Rating (IDR) of Banco Agromercantil de Guatemala, S.A. (BAM) to 'BB' from 'BB +' as it is constrained by the Guatemalan country ceiling; its Outlook was revised to Stable from Negative. In turn, the downgrade of the bank's Local Currency IDRs to 'BB +' from 'BBB-' is consistent with a maximum uplift of two notches above the sovereign rating; its Outlook remains Negative in line with the its parent's ratings. BAM's Viability Rating was downgraded to 'b +' from 'bb' given its weaker financial profile compared to its peers, which provides it with less intrinsic capacity to face the challenges of the current coronavirus crisis, marked by an economic deceleration, commercial activities disruption and a likely increase of unemployment. The national ratings of the bank and its subsidiaries are unaffected.

Fitch also downgraded the Foreign and Local Currency Long-Term Issuer Default Ratings (IDRs) of Banco Industrial, S.A. (Industrial), Banco de Desarrollo Rural, S.A. (Banrural) and Banco G&T Continental, S.A. (G&TC) to 'BB-' from 'BB' following sovereign rating action, and their Viability Ratings to 'bb-' from 'bb'. The downgrades maintain these ratings at the same level as the sovereign rating. Fitch does not rate Guatemalan banks above the sovereign rating based on their intrinsic credit profiles given the high influence of the operating environment on the financial sector and the banks' credit profiles.

Fitch revised the Outlook on Industrial's IDRs to Stable from Negative and affirmed the bank and its subsidiaries' national ratings with Outlook Stable considering Industrial's financial profile to be more resilient to the deterioration of the operating environment. In turn, the agency maintained the Negative Rating Outlook of G & TC's IDRs and Banrural's IDRs and National ratings to reflect the higher sensitivity of their financial profiles to operating environment deterioration and the economic pressure arising from the coronavirus pandemic.

The National ratings of Banrural and its subsidiary Financiera Rural (Finrural) were downgraded as Fitch does not consider its financial profile to be less sensitive to deterioration in the operating environment compared to local peers. In turn, the national ratings G&T and their local subsidiaries were affirmed and the outlooks revised to Negative in accordance with the outlook of G & TC's LC IDR. Banco de Desarrollo Rural Honduras, S.A. (Banrural Honduras) 's National ratings were affirmed and outlook revised to Negative from Stable, reflecting the Negative outlook of its parent company.

Banco de los Trabajadores (Bantrab) 's Foreign and Local Currency Long-Term IDRs were affirmed at' BB- ', Outlook revised to Negative from Stable, VR affirmed at' bb- ', National ratings affirmed at A- (gtm) and the Outlook was revised to Negative from Positive. Financiera de los Trabajadores's (Fintrab) National ratings and outlook mirror the rating actions of its parent's national ratings, reflecting the sensitivity of its financial profile to the deterioration of the operating environment due to the coronavirus crisis.

Fitch has also downgraded the Support Ratings (SRs) and Support Rating Floors (SRFs) of Industrial, Banrural and G&TC, while Bantrab's SR and SRF were affirmed.

Fitch downgraded the national ratings for GTC Bank, Inc. (GTC) and BI Bank, S.A. (BIBANK) in Panama, as a result of their supporting companies' downgrade given Fitch's view that these banks have a relatively weaker creditworthiness compared with other issuers in Panama.

As part of this review, Fitch has also downgraded Industrial's subordinated securities, which have been removed from the status of "Under Criteria Observation" (UCO) placed previously upon the release of Fitch's latest Bank Rating Criteria.


KEY RATING DRIVERS

IDRs AND VRs

BAM

BAM's IDRs are rated above the sovereign to reflect potential support from its shareholder Bancolombia, S.A. if required. The bank's Foreign Currency IDR is rated at the country ceiling of 'BB', which captures transfer and convertibility risks, and the local currency IDR is given the maximum uplift of two notches above the sovereign rating, which in Fitch's opinion reflects the moderate owner's commitment to its subsidiary. In the agency's view, Bancolombia's propensity to provide support is highly influenced by the huge reputational risk that BAM's potential default would constitute to its parent, which could damage its franchise. Although the relative size of this subsidiaries is small compared to its shareholder, which theoretically facilitates support if necessary, Fitch will closely monitor the ability of the parent companies to support its subsidiaries.

A challenging operating environment and weaker financial performance compared to its closest peers (large commercial banks in Guatemala) influence BAM's VR. The VR also considers the bank's moderate market position and the challenges to sustain its low financial metrics in the current environment.

The national ratings of BAM are unaffected.

Industrial, Banrural, G&TC

Industrial, Banrural and G & TC's VR driven IDRs are rated at the sovereign level. The downward revision of the country's growth prospects related to the global coronavirus crisis as well as heightened political tensions influence the business environment and the local banks' performance which Fitch believes limit their VRs. The three banks' VRs are highly influenced by the operating environment and their strong local franchises.

Bantrab

Bantrab's IDRs and VR are mainly influenced by the challenging operating environment and its company profile. In the agency's opinion the operating environment will increase pressures on overall economic growth, thus hindering the bank's potential for growth, while the company profile is defined by a sound franchise in consumer lending, second in the industry, and a competitive position in product leadership for some target segments. Also, stability in earnings from public sector employees is expected to continue through the credit cycle.

SUPPORT RATING AND SUPPORT RATING FLOOR

BAM's SR of '3' reflects a moderate probability of support from Bancolombia's, if needed.

Industrial, Banrural and G & TC's SRs of '4' reflect Fitch's opinion about the limited probability of extraordinary support that the banks will receive from the sovereign, if needed. Fitch's assessment of support is based on the sovereign ability to provide support, as reflected in its rating and the small relative size of the banking system. The SRs also reflect the banks' deposit-based funding structure and systemic importance in Guatemala.

Industrial, G&TC and Banrural's SRFs are one notch below the sovereign rating of Guatemala and according to Fitch's criteria, indicate the minimum level to which the entity's Long-Term IDR could fall as long as Fitch's assessment of the support factors does not change.

Bantrab's SR and SRF remain at their current levels of '5' and 'NF', respectively. Guatemala's propensity or ability to provide timely support to Bantrab is not likely to change given the bank's low systemic importance.

SENIOR DEBT, SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

Industrial Senior Trust (ISnT) Notes ratings are in line with their banks' VR, reflecting that the senior unsecured obligations rank equally to the banks unsecured and unsubordinated obligations, respectively.

Industrial's subordinated Tier I capital (IST- I) notes are rated four notches below the bank's VR given its deep subordination status and discretionary coupon omission.

Industrial Subordinated Trust's (ISbT) Notes, a special issuance vehicle of Industrial, are removed from Under Criteria Observation and downgraded to B, two notches below Industrial's VR, reflecting the subordinated status, ranking junior to all Industrial's present and future senior indebtedness, pari passu with all other unsecured subordinated debt and senior to industrial's capital and tier I hybrid securities.

Bantrab Senior Trust (BST) ratings were affirmed at 'BB-'. Bantrab's Senior Trust's (BST) seven-year U.S.-dollar loan participation notes' rating is in line with Bantrab's VR, reflecting that the senior unsecured obligations rank equally with the bank's unsecured and unsubordinated obligations.

SUBSIDIARIES AND AFFILIATED COMPANIES

LIBRARY

BIBank's National Ratings in Panama reflect the potential support from its sister company, Industrial through their holding company Bicapital Corporation. Our support assessment considers with a high importance that a default would constitute high reputational risk to its parent and to industrial.

WESTRUST BANK, CONTECNICA AND FINANCIERA INDUSTRIAL

The national ratings of Industrial's subsidiaries in Guatemala: Westrust Bank, Contecnica and Financiera Industrial, are aligned with Industrial's national ratings. The national ratings of the subsidiaries reflect Fitch's assessment of the potential support they would receive from Industrial, if necessary.

Banco del Pais

Banco del País' National Scale ratings in Honduras were unaffected by Industrial's rating action as Fitch's opinion about its capacity to provide support relative to other local entities remains unchanged.

FINANCIERA G&TC, CONTICREDIT AND GTC

Fin G&TC, Conticredit and GTC's Guatemalan National Scale Ratings and GTC's Panamanian National Ratings reflect the potential support from its parent G&TC. Fitch's assessment of support considers its relevant role within the group's strategy and that a default would constitute a very high reputational risk to its parent. Conticredit's senior unsecured national scale ratings were affirmed and remain aligned to the national ratings of their issuer.

GTC

GTC Bank Inc.'s, Panamanian National Scale Ratings' reflect the potential support from its parent G&TC. Fitch's assessment of support considers its relevant role within the group's strategy and that a default would constitute a very high reputational risk to its parent.

Banrural Honduras

Banrural Honduras ratings are driven by the potential support it would receive from its parent Banrural, from Guatemala, if required. Banrural has high capacity and propensity to support its Honduran subsidiary. Fitch considers that support relies mostly upon the potential impact that a default could cause to parent's reputation, since the Honduran subsidiary is the first and only foreign subsidiary, which has the same branding.

FINANCIERA DE LOS TRABAJADORES

Fintrab's National Ratings are underpinned by institutional support it would likely receive from its shareholder, Bantrab. Fitch's opinion of support is based on the significant reputational risk that a default would pose to Bantrab. As a result, Fintrab's national ratings are aligned with Bantrab's credit profile.


RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action / upgrade:

INDUSTRIAL, BANRURAL, BANTRAB, G&TC, BAM, and their issuances and subsidiaries

--The IDRs and National ratings of Industrial and its subsidiaries, its issuances (IST-I, ISnT) and Agromercantil have limited upside potential given the current sovereign rating, country ceiling and broader operating environment.

- Industrial and BAM's IDR and VRs, could be upgraded in the event of an upgrade of Guatemala's sovereign rating and improvement of the operating environment.

--There is limited upside potential given that ratings are at the sovereign level. Banrural, G&TC and Bantrab IDRs and National Ratings could be affirmed, and their Negative Outlooks revised to Stable, if the impact of the economic disruption from the coronavirus outbreak does not result in significant deterioration on its financial metrics, especially in terms of asset quality and earnings and profitability.

- The rating outlooks of Finrural, Banrural Honduras, G&T Conticredit, Financiera G&T Continental, GTC Bank and Fintrab's could be revised to Stable if the ratings outlooks of their respective parent companies' rating outlooks are revised to Stable from Negative.

SUPPORT RATINGS and SUPPORT RATING FLOOR

--Industrial, G&TC and Banrural's SR and SRF and BAM's SR could be upgraded in the event of an upgrade of Guatemala's sovereign rating and improvement of the operating environment. There is limited upside potential for Bantrab's SR due to low systemic significance and non-material government ownership.

SENIOR DEBT, SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

--IST-I, ISnT and ISbT's ratings would be upgraded if Industrial's VR is upgraded.

--Bantrab Senior Trust ratings would be upgraded if Bantrab's VR is upgraded.

--Conticredit's senior unsecured debt would be upgraded in case of positive rating actions on Conticredit's National ratings.

Factors that could, individually or collectively, lead to negative rating action / downgrade:

INDUSTRIAL, BANRURAL, BANTRAB, G&TC, BAM and their subsidiaries

--Banrural, G&TC, Bantrab's ratings could be downgraded if the deterioration of the financial profile of these entities caused by the pandemic turns out to be significantly more important than anticipated.

--Ratings are also sensitive to a downgrade of the sovereign rating.

Industrial and BAM's ratings are sensitive to a downgrade of the sovereign rating and country ceiling.

- Industrial's IDRs and VR would be downgraded if sustain a deterioration in its asset quality and financial performance that drives its FCC ratio to a level consistently below 9%.

--Banrural's IDRs and VR would be downgraded if its operating profit to RWAs decline to a level below 2%, along with a decline in capitalization (FCC / RWA close to 12%).

--G & TC's IDRs and VR would also be downgraded in a scenario of a significant deterioration of asset quality which increases the bank's impairment levels, and results in a sustained decline in the bank's operating profits to risk weighted assets ratio consistently below 1% and FCC ratio below 9%.

- The rating outlooks of Finrural, Banrural Honduras, G&T Conticredit, Financiera G&T Continental, GTC Bank and Fintrab's could be revised to Stable if the ratings outlooks of their respective parent companies' rating outlooks are revised to Stable from Negative.

--BAM's VR could be downgraded in a scenario of a material deterioration in the local operating environment that reduce its operating profit to RWA metric below 1% and / or the Fitch Core Capital ratio consistently falls below 9%.

- The national ratings of Finrural, Banrural Honduras, G&T Conticredit, Financiera G&T Continental, GTC Bank and Fintrab's could be downgraded if the ratings of their respective parent companies' rating are downgraded.

SUPPORT RATINGS and SUPPORT RATING FLOOR

Industrial, G&TC and Banrural's SR and SRF and BAM's SR could be downgraded in the event of an downgrade of Guatemala's sovereign rating and reflecting a weaker operating environment. No downside potential for Bantrab's SR and SRF since they are at the lowest level of the scale.

SENIOR DEBT, SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

--IST-I, ISnT and ISbT's ratings would be downgraded if Industrial's VR is downgraded.

--Bantrab Senior Trust ratings would be downgraded if Bantrab's VR is downgraded.

--Conticredit's senior unsecured debt would be downgraded in case of negative rating actions on Conticredit's National ratings.


BEST / WORST CASE RATING SCENARIO

Ratings of Financial Institutions issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings please visit https://www.fitchratings.com/site/re/10111579.


REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS

BAM's ratings are support driven by its shareholder Bancolombia, S.A.

The ratings of the subsidiaries of Banco Industrial: Contecnica, Westrust, BI Bank and Financiera Industrial are driven by support from Banco Industrial; while the ratings of the special purpose vehicles Industrial Senior Trust and Industrial Subordinated Trust are linked to the rating of Banco Industrial.

The ratings of the subsidiaries of Banco G&T: FINANCIERA G&TC, CONTICREDIT AND GTC are driven by support from Banco G&T.

Financiera de los Trabajadores 'ratings are support-driven by Banco de los Trabajadores' ratings. the ratings of the special purpose vehicles Bantrab Senior Trust are linked to the ratings of Bantrab.

Financiera Rural, S.A and Banrural Honduras' ratings are support-driven by Banrural.


ESG CONSIDERATIONS

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of 3.ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity.

Bantrab has an ESG Relevance Score of 4 for Management Strategy which indicates that its strategy, while evolving positively, is still considered exposed to operational implementation risks.

Bantrab has an ESG Relevance Score of 4 for Governance Structure since Fitch expects the relatively recent consolidation of the corporate governance framework to be proven effective in the foreseeable future, namely board independence and effectiveness.


View additional rating details

Additional information is available on www.fitchratings.com

Additional Disclosures

ENDORSEMENT STATUS

Banco Agromercantil de Guatemala S.A. EU endorsed
Banco de Desarrollo Rural Honduras, S.A. -
Banco de Desarrollo Rural, S.A. EU endorsed
Banco de los Trabajadores EU endorsed
Banco G&T Continental S.A. EU endorsed
Banco Industrial, S.A. EU endorsed
BI Bank, S.A. -
Contecnica S.A. -
Financiera de los Trabajadores, S.A. -
Financiera G & T Continental, S.A. -
Financiera Industrial, S.A. -
Financiera Rural, S.A. -
G&T Conticredit, S.A. -
GTC Bank, Inc. (Guatemala) -
GTC Bank, Inc. (Panama) -
Industrial Senior Trust EU endorsed
Industrial Subordinated Trust EU endorsed
Westrust Bank (International) Limited -

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