Fitch Ratings has affirmed
The outlook on the Long-Term IDRs remains Negative.
KEY RATING DRIVERS
IDRS and VR
The bank's IDRs and VR are highly influenced by the operating environment of the countries in which the bank does business, the development of its company profile and its low risk appetite. The affirmation of Bladex's ratings following the downgrade of
Bladex credit exposures are allocated in more than 25 countries, having increased its lending operations in countries rated by Fitch in investment grade to 55% of the total portfolio at 3Q20. Fitch has affirmed at 'bbb-' the score of Bladex's combined operating environment, based on its international operations, measured by its earning assets, its ability to reduce its exposure to riskier jurisdictions, as well as the temporary nature of the increase in its liquid assets.
Fitch believes that Bladex's business model is mature and mitigates certain risks of the operating environment, as it is based mainly on short-term trade financing and loans to financial institutions. However, it also implies an elevated concentration on large clients and a material reduction in the bank's balance sheet during stress periods, limiting the growth of its regional franchise. Bladex's conservative risk appetite has been reflected in the de-risking strategy executed in recent years and the increase of its liquidity and credit exposures in higher credit quality assets.
Bladex's financial profile during the pandemic has been good, reflected in the reduction of the NPLs ratio to zero and the strengthening of its capitalization and liquidity. However, Fitch's view the bank's asset quality is still sensitive to deterioration of individual clients due to its wholesale approach and high concentration per borrower. These risks are partially mitigated by the permanent monitoring of its clients and economic sectors, as well as a focus on top clients in each jurisdiction. Modified loans accounts for less than 0.5% of gross loans. Fitch expects the portfolio to resume growth in 2021, maintaining a conservative risk approach to avoid an increase in its NPLs to levels above the average of recent years (YE16-YE19 average of 1.1%), as loan quality still faces headwinds.
Bladex's profitability is stable but still low, reflecting the de-risking strategy and increased proportion of liquid assets in the balance sheet. The operating-profit-to-RWAs ratio was 1.3% at 3Q20 (YE16-YE19 average of 1.1%) and it could improve in 2021 given a return in credit growth and the measures taken by the bank to contain operating expenses and expand the net interest margin. However, its profitability level continues to be sensitive to increases in loan impairment charges due to a potential deterioration of clients.
Bladex sustain a strong capitalization since its CET1 ratio has increased to 26.5% at 3Q20, above YE16-YE19 average of 19.2%, and Fitch expects it to remain above 20% during 2021 due to the expected moderate recovery of credit and still high liquidity. Although this financial metric is higher compared to its peers, Fitch also considers the bank's high concentration per borrower, which is considered a negative deviation factor, in assessing Bladex's capitalization.
Bladex maintains diversified funding due to its good market access, broad institutional relationships and stable shareholder-based deposit base. All its financing lines increased during 2020, showing the bank's adequate capacity to raise funds. The bank's liquidity remains high and mainly placed in the
SUPPORT RATING AND SUPPORT RATING FLOOR
The bank's Support Rating and Support Rating Floor reflect Fitch's view that external support for the bank is possible but cannot be relied upon.
SENIOR UNSECURED DEBT NATIONAL RATINGS
Bladex's senior unsecured debt national rating in
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Bladex's ratings could be downgraded if the risks of the current operating environment result in a significant deterioration of the loan portfolio quality, particularly if this pressures the operating profit to RWAs ratio to a level consistently below 1.0% and/or the CET1 ratio falls to a level consistently below 18.0%.
A change in the bank's risk appetite that leads it to increase its exposure in higher-risk countries or sectors and weaken Fitch's assessment of its operating environment, would trigger a downgrade of its ratings.
The senior unsecured debt national rating in
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Bladex's ratings could be affirmed and the Outlook revised to Stable if the de-risking process in the loan portfolio and commercial/pricing strategies mitigate the earnings volatility and high sensitivity to changes in the operating environment and/or asset quality changes and stabilizes the operating profit to RWAs ratio at a level above 1.0%.
There is no upside potential of the senior unsecured debt national rating in
As
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and Covered Bond 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 '
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.
ESG CONSIDERATIONS
BLADEX has an ESG relevance score of 4 for Management Strategy due to the need to rapidly adapt its overall strategy given its broad presence across the Latin American region as Bladex's profitability and financial performance is highly reliant of the management execution of the de-risking and loan quality control strategies, which has a positive impact on the credit profile, and is relevant to the ratings in conjunction with other factors .
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means 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. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
Rating ActionsENTITY/DEBT RATING PRIOR
Banco Latinoamericano de Comercio Exterior, S.A. LT IDR BBB Affirmed BBB
ST IDR F3 Affirmed F3
Viability bbb Affirmed bbb
Support 5 Affirmed 5
Support Floor NF Affirmed NF
senior unsecured
Natl LTAAA (mex) AffirmedAAA (mex)
View additional rating details
Additional information is available on www.fitchratings.com
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