Fitch Revises Banco Industrial's (Guatemala) Outlook to Positive; Affirms Ratings.
--Long-term foreign and local currency Issuer Default Rating (IDRs) 'BB';
--Short-term foreign and local currency rating 'B';
--Support Rating Floor 'BB-';
--National-scale long-term rating 'AA-(gtm)';
--National-scale short-term rating 'F1(gtm)';
Industrial's ratings reflect its strong franchise in Guatemala, adequate asset quality and ample deposits and liquidity. The ratings are limited by the company's tight capitalization and reserve levels, and relatively low, though improving, profitability.
In addition to strong organic growth in recent years, some in-market acquisitions since 2006 have constrained the bank's IDRs and Individual rating, mainly because of its tight capital and reserves, as well as the operating challenges arising from non-organic growth. However, its internal capital generation is improving, while its base of eligible capital will be further strengthened with eligible hybrids and, if required going forward, additional capital contributions. Moreover, the local franchise has been enhanced, while the bank continues seeking growth opportunities in its core foreign markets (El Salvador, Honduras and, to a lesser extent, Mexico and the U.S.). The Positive Outlook reflects that ratings could be upgraded as the bank consolidates its domestic and regional expansion while boosting its loss absorption capacity, in the form of stronger capital adequacy and/or loan loss reserves. Its ability to sustain improvements in profitability and funding will be critical to this consolidation.
If Industrial ran into difficulties, we believe the Guatemalan government (rated 'BB+' with Stable Outlook) would have a vested interest to support the bank, given its ample deposit market share. Due to the country's sub-investment grade sovereign rating, Fitch considers that the probability of sovereign support for the bank is moderate. Downside risk for the IDRs, which in Fitch's view is currently low, is limited by the support floor.
Founded in 1968, Industrial is Guatemala's largest bank with 25% of the system's assets at June 2007. At the same date, the bank had 242 branches. Industrial also has a representative office in Mexico since August 2005, in addition to others in Honduras, Costa Rica and El Salvador. In July 2003, Corporacion BI (CBI) was established, a financial group made up of Industrial and other nine companies, whereby Industrial is the "responsible company" for all the group's entities. While Industrial has historically had a corporate orientation, it offers a wide array of universal banking services to a rapidly-growing client base. In recent years, Industrial has notably expanded its retail business. At present, the retail sector accounts for 28% of its overall business mix, but it will remain Industrial's core target market and the fastest-growing segment. Abroad, Industrial plans to gradually expand its operations, prominently to the US and neighboring Central American countries, in addition to its actual operations in southern Mexico. While some external growth is expected to be organic-driven, acquisitions might be the key driver of regional expansion.
Banco de Occidente, acquired by Industrial in March 2006 when it had a 5% market share and was Guatemala's sixth largest bank, was merged into Industrial in November 2006. In January 2007, Industrial absorbed the deposits and branches of Banco de Comercio (Bancomer), which was intervened by the banking regulators due to liquidity problems. We expect that the potential net costs of this absorption, if any, will likely be minor and will not affect Industrial's financial condition. Recently, Industrial announced an agreement to merge Banco del Quetzal, a well-performing small bank, which will provide another footprint in the mortgage and consumer finance sectors. Unlike the acquisition of Banco de Occidente in 2006, neither the absorption of Bancomer nor the merger of Banco del Quetzal resulted in cash disbursements or goodwill created by Industrial (Quetzal's shareholders will only receive Industrial's shares upon completion of the merger).
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|Date:||Nov 26, 2007|
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