Fitch Ratings has affirmed
Fitch has also affirmed the bank's Viability Rating (VR) at 'ccc+'.
Key Rating Drivers
Support Driven Ratings: ProCredit Ecuador's IDRs are driven by Fitch's assessment of the potential support it would receive from its parent,
Shareholder Support Rating: The 'b-' Shareholder Support Rating reflects Fitch's view of parent support as robust but constrained by
PCH's ability to provide timely support contemplates ProCredit Ecuador's relative size of approximately 6% of consolidated assets; Fitch believes any required support would be immaterial relative to the ability of parent to provide it. The propensity and commitment of PCH to provide support is reflected in the high level of operational and managerial integration and the reputational implications of subsidiary default. In addition, Fitch considers the presence of related funding and guarantees during different economic cycles in the support assessment.
VR
Adequate Asset Quality: At 3Q22, the NPL ratio deteriorated to 2.2% compared to 4YA of 1.6% (2018-2021; YE21: 2.5%) mainly due to seasoning of restructured and refinanced loans and more recently as a result of the Ecuadorian national strike that took place in June. Fitch expects asset quality to deteriorate when regulatory flexibility to delay NPLs recognition up to 60 days to cushion the coronavirus pandemic impact ends at YE22. However, it will remain adequate and commensurate with the bank's rating category.
Slight Profitability Increase:
Parent Supported Capitalization: Capitalization ratios remain modest but supported, given PCH's propensity to provide support in line with ProCredit Ecuador's capitalization objectives. At 3Q22, the
Improved Liquidity: Fitch believes that ProCredit Ecuador maintains a stable funding structure and adequate liquidity levels. The bank relies on external funding sources, primarily supported by the parent's benefits. At 3Q22, ProCredit Ecuador's loans to deposits ratio improved to 142.7% (compared to 151.7% at 4Q21), reflecting growth of 16.2% in customer deposits and the benefits of adequate liquidity in the Ecuadorian banking system, albeit less than in 2020 and 2021. Further funding diversification is possible in keeping with continuous growth of retail deposits and regulatory limits regarding parent funding.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
ProCredit Ecuador's IDR and SSR are sensitive to changes in the sovereign rating and country ceiling;
IDRs and the SSR could also be downgraded if PCH's propensity or ability to support materially weakened;
The VR could be downgraded in the event of a sharp deterioration of the asset quality and consequently on its profitability metrics that would significantly reduce capital metrics.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
ProCredit Ecuador's IDR and SSR could be upgraded in the event of an upgrade in the country ceiling and
The VR has limited upside potential considering the still challenging operating environment. An upgrade of the bank's VR would also require sustainable improvements on profit ratios.
VR ADJUSTMENTS
Fitch has assigned an Operating Environment score of 'ccc+' that is below the 'b' category implied score due to the following adjustment reason: Macroeconomic Stability (negative).
Fitch has assigned a Business Profile score of 'ccc+' that is below the 'b' category implied score due to the following adjustment reason: Business Model (negative).
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
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
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