Banco Pastor Rtd A-/A-2 by S&P;Otlk Stable.

LONDON--(BUSINESS WIRE)--Standard & Poor's CreditWire 6/1/98-- Standard & Poor's today assigned its single-'A'-minus long-term and 'A-2' short-term issuer credit ratings to Banco Pastor. The ratings reflect the bank's strong home market position in Galicia, good liquidity stemming from retail customer deposits in Spain and from expatriate Galicians, significant improvement in asset quality, and modern and effective information systems. These factors are offset by Pastor's high (albeit improving) cost structure as well as its relatively weaker competitive position in Spain outside of Galicia.

Banco Pastor is a mid-sized Spanish retail bank with a strong 20-22% market share in Galicia, its home base, and a nationwide branch network concentrated in neighboring Asturias and Castilla-Leon, the Madrid region and Cataluna. The bank has been active in Galicia for over 200 years and consequently has close ties to the local community. Its principal shareholder with a 42% stake is a Pastor family-controlled foundation that funds education and the arts in the region. Galicia, traditionally a center of agriculture, livestock farming and fishing, is experiencing steady economic growth in services and value-added manufacturing aided by the completion of infrastructure projects in the region. Its population is 2.7 million and the gross regional product is Spanish Peseta (Ptas) 4.3 trillion (US$27 billion), with a per capita gross domestic product of Ptas 1.5 million, 17% under the national average.

The bank serves the retail consumer and commercial market with a full range of loan and savings products. It benefits from a stable retail deposit base in Galicia and from expatriate Galicians in South America and Europe. Retail deposits well exceed loans, although less than in the past due to the market-wide shift in savings to mutual funds and higher loan growth at the bank. Pastor has expanded mortgage loans significantly in the past three years, to the point where they make up over 40% of total loans. In line with the Spanish economic expansion that began in 1994, nonperforming assets (past due loans and repossessed properties) have declined markedly, to under 2% of assets at year-end 1997, a figure lower than the Spanish market average. After experiencing a high level of problem loans in the early 1990's, the bank revamped its customer monitoring and loan work-out practices to more tightly manage credit risk, with good results. Problem assets are well covered by loss reserves. The small size of the bank and the cost of maintaining a widespread nationwide network and a full range of products means that Pastor has a relatively high overhead structure that is hard to shrink, even though cost control is a high priority for the bank. Returns on risk-weighted assets and equity are no better than the market average in Spain, but have improved steadily since 1994. Capital more than adequately covers the bank's credit and market risks.

OUTLOOK: Stable. Banco Pastor should be able to maintain or slightly improve its present financial profile in the medium term, due to the high priority assigned to cost control and the limited scope of its expansion strategy. Management runs a tight ship, and the bank's commercial position in Galicia is clearly defensible. Ratings could go down if interest margins come under significant further pressure due to competition in Spain. Ratings could go up if Pastor significantly reduces overhead or if the bank runs more business volume through its network without increasing costs and risks, Standard & Poor's said. ---CreditWire

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