Fitch Affirms Banco del Pichincha's IDR at 'B-'; Outlook Negative.

NEW YORK -- Fitch has affirmed Banco del Pichincha's (Pichincha) long-term and short-term Issuer Default Ratings (IDRs) as follows:

-- Foreign currency long-term IDR at 'B-';

-- Foreign currency short-term rating at 'B';

-- Support rating at '5'.

The Rating Outlook is Negative.

The affirmations reflect Banco del Pichincha's strong franchise in Ecuador, its broad deposit base, its adequate liquidity and its improving financial performance. Pichincha's ratings are above Ecuador's sovereign ratings (long-term IDR 'CCC' on a Negative Watch by Fitch) because it has very little exposure to government debt and it has sound liquidity backed by high quality assets. Concerns over tight capital, as well as the prevailing uncertainty in its operating environment, restrain Pichincha's ratings.

Pichincha's ratings have a Negative Outlook in line with the Outlook on Ecuador's sovereign ratings, downgraded on Jan. 23, 2007, reflecting the still troubled political environment there. Government intervention on Pichincha's ability to manage liquidity and its balance sheet would result in a downgrade. The bank also needs to further increase its capacity to absorb losses.

Despite the favorable global context, the Ecuadorian economy has not performed at its full potential as it is hindered by political strife that discourages investment. The new government has sent mixed signals that point towards higher intervention in the economy, greater political grip over the Central Bank and possible restrictions on bank activities.

Pichincha's loan portfolio grew 16% (year to date at September 2006) driven by retail customers, representing 28% of the portfolio at that date (vs. 19% at December 2003), and boosting interest revenues 22% year-over-year (YOY) at September 2006. Non-interest revenues followed closely growing 21% at the same date. Non-recurring revenues, moderate operating cost growth (+15% YOY at September 2006) and steady loan provisions contributed to net income growth of 26% YOY at September 2006. The outlook ahead is clouded by the political uncertainty.

Pichincha's focus on consumer banking results in higher than average PDLs. Nevertheless, asset quality improved and loan loss reserves cover 139% of the CDE portfolio at September 2006, up from 109% a year earlier.

Pichincha's broad, low cost deposit base remains a strength and grew 21% YOY at September 2006. Liquidity is high by internal policy. Historically strong liquidity backed by quality assets may be restricted by government direction to repatriate assets held abroad.

Capital adequacy remained fairly stable during 2006 at about 11.5% -- the lowest among top Ecuadorian banks -- leaving little room for growth or to face unexpected portfolio deterioration. Capital is mostly Tier I (about 75%) and has little subordinated debt; the bank plans to issue up to US$45 million convertible bonds to fund growth.

Pichincha's support rating of '5' is indicative of Fitch's belief that in spite of a dominant market position and systemic importance, the bank would not be able to rely on government support, if it were necessary, given Ecuador's weak fiscal standing, the lack of a lender of last resort and apparent political ill-will towards banks.

Banco del Pichincha is Ecuador's largest bank with about 25% of deposits and 26% of loans at September 2006. Incorporated in 1906, the group offers a wide array of services to corporate, middle market and consumer customers. Pichincha is tightly controlled by Mr. Fidel Egas Grijalva who holds over 65% of the company's stock directly and indirectly.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.