Fitch Upgrades Banco Agricola L-T IDR to 'BB+' and Individual to 'C/D'.

MONTERREY, Mexico -- Fitch Ratings has upgraded the Individual and Long-term Issuer Default Ratings (IDR) assigned to Banco Agricola. The rating actions are as follows:

Banco Agricola (Agricola):

--Long-term Issuer Default rating (IDR) upgraded to 'BB+' from 'BB';

--Short-term rating affirmed at 'B';

--Individual rating upgraded to 'C/D' from 'D';

--Support affirmed at '5'.

National ratings:

--Long-term IDR upgraded to 'AA+(slv)' from 'AA(slv)';

--Short-term rating affirmed at 'F1+(slv)'.

--Local unsecured bonds upgraded to 'AA+(slv)' from 'AA(slv)';

--Local secured bonds (mortgage-pledged) upgraded to 'AAA(slv)' from 'AA+(slv)';

--Outlook: Stable

At the same time, the long-term national-scale ratings assigned in El Salvador to Agricola's local parent, Inversiones Financieras Banco Agricola (IFBA), and ultimate parent, Panama-based Banagricola, S.A. (Banagricola) were also upgraded to 'AA+(slv)' from 'AA(slv)', while their short-term ratings were affirmed at 'F1+(slv)'. Banagricola's national scale ratings in Panama were affirmed at 'AA(pan)' and F1+(pan)'.

The upgrade in Agricola's Individual and L-T IDR reflect sustained improvements in capitalization, operating efficiency, and asset quality, as the bank has been able to rapidly lower the level of non-earning assets, although these continue to weigh on its financial profile. The ratings also consider the challenging operating environment and Agricola's still modest profitability.

Loan growth, slightly wider margins, and stronger operating efficiency have underpinned higher profitability, while revenue diversification continues to be limited. Agricola's robust franchise, and well-contained funding, non-interest, and credit costs are major strengths. Asset quality has maintained a positive trend owing to steady reductions in restructured loans, and repossessed and other non-earning assets. Past-due loans remain within Agricola's target of 2% of total loans (1.84% at end-June 2006). Asset-liability tenor mismatches remain, but liquidity risk is partially mitigated by the historical stability of customer deposits. Capital adequacy has been also enhanced by slightly higher retained earnings and declining non-earning assets. Though improving, capital remains somewhat tight in view of the portion of net past-due and restructured loans plus net FICAFE and net foreclosed assets (40% of equity).

Agricola is El Salvador's largest bank, with a deposit and asset market share of 28% at end-June 2006, and is part of one of the largest financial groups in Central America. IFBA owns a 92% stake in Agricola and majority stakes in subsidiaries in the insurance, stockbrokerage and pension fund management sectors. In turn, Agricola's subsidiaries are credit card issuer Credibac and the leasing company Arrendadora Financiera. At end-June 2006, Agricola had USD3.1 billion in assets and a nation-wide network of 61 branches and 342 ATMs, but has an additional presence of 178 domestic points-of-sale plus 24 agencies in the United States to handle remittances.

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