Fitch Ratings has affirmed
The Rating Outlook on the Long-Term IDR is Stable. Fitch has also affirmed Bladex's Viability Rating (VR) at 'bbb' and the Government Support Rating (GSR) of 'No Support' (ns). The bank's National Long-Term and Short-Term ratings were affirmed at '
Key Rating Drivers
Ratings Driven by Intrinsic Creditworthiness: Bladex's IDRs and national ratings are underpinned on its standalone performance captured in its 'bbb' VR, which is equal to its implied VR and one notch above
Jurisdictional Operating Environment: Bladex maintains credit operations in more than 25 countries, highlighting its wide geographical diversity and strong ability to manage different operating environments (OE), adapting its portfolio relatively quickly towards markets with lower risk and more favorable opportunities. As of
Robust and Outstanding Business Profile: The bank's business model, which focuses on short-term loans and top-tier clients, together with a solid corporate governance, and the experience, depth, and credibility of its management, have resulted in a highly recognized regional franchise, with strong and enduring relationships with clients, that compares favorably with regional institutions. In Fitch's view, these factors offset lower-than-peers total operating income, which four-year average is
The effective execution of the bank's low-risk strategy, which consistently directs its credit portfolio towards high-quality assets in defensive jurisdictions and sectors, underpins its conservative risk profile. It has all translated into strong financial performance at 2Q23, despite the concentrations by debtor inherent in its model and the challenges on some low-rated OEs.
Strong Loan Quality: Fitch estimates the loan quality to remain robust in the rating horizon, supported by its solid risk profile reflected in consistent and sound underwriting standards, as well as in its focus on top-tier clients. Fitch maintains an asset quality score of 'bbb+', below the recently improved implied score in the 'a' category given the high concentration per debtor inherent to its business model. Although debtor concentration has reduced in recent years, it continues to be a potential risk of credit losses. As of 2Q23, the ratio of non-performing loans (NPLs in Stage 3) was 0.15%, after registering 0.44% at YE 2022 (YE 2019-YE 2021: 0.48%), related with the detriment of a credit prudently written-off in 2Q23 given its low recovery expectation. The reserve coverage for NPLs was 422.8% as of 2Q23.
Improved Profitability: Fitch upgraded Bladex's Earnings and Profitability score to 'bb+' from 'bb' as profitability continued with a favorable trend as of 2Q23, evidencing the materialization of its strategy's benefits. The operating profit to risk-weighted assets (RWA) ratio was 1.8% compared to 1.1% at YE 2022, primarily driven by higher interest income, an improved net interest margin, relatively lower loan impairment charges and better operational efficiency. Fitch expects Bladex's profitability to remain at similar levels to those recently observed and to improve as the actions implemented continue to materialize in the rating horizon.
Capitalization Tending to Increase: As of 2Q23, the common equity Tier 1 (CET1) ratio of 15.7% (YE 2022: 15.3%) showed a moderate upward trend influenced by the slowdown in growth loan, which is also reflected in the RWA, along with higher internal capital generation due to the good results during 1H23, translating positively to the equity levels. The agency expects the CET1 metric will continue to strengthen to levels slightly above 16%, which will remain consistent to the assigned 'bbb' capitalization score, providing headroom to absorb potential impacts stemming from unexpected losses.
Sound Funding Profile: Bladex's greatly diversified financing structure, different from a traditional bank, supports its specialized business model and sticks it out from regional institutions. This has been further strengthened, providing the entity room to face adverse conditions. It is characterized by a very high-quality deposit base, a short-term balance structure, and very broad access to various funding sources in international markets, also encompassing contingent resources.
As of 2Q23, deposits grew significantly (31.6% YoY), accounting for 47.9% of total funding (YE 2022: 40.5%), which is complemented by repos, senior unsecured debt and borrowings from a wide range of international institutions. Fitch also considers in its assessment its liquid balance sheet. Bladex's liquidity (LCR of 136.2% at 2Q23) is made up of high-quality and easily realizable assets, giving it leeway in the prevailing environment.
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 OE materially increase, resulting in a significant deterioration in loan portfolio quality and profitability that pressure the CET1 to RWA ratio to a level consistently below 13.0%;
A change in the bank's risk profile that results in an increased exposure to higher-risk countries or sectors and weakens Fitch's assessment of its OE, would trigger a downgrade of its ratings.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Bladex's ratings could be upgraded if its asset diversification strategy sustains the improvement in the OE weighted score, which in turn improves profitability (operating profit to RWA) consistently above 1.5% and the CET1 to RWA ratio steadily above 17%;
Material reductions in concentrations per debtor also could improve Fitch's assessment of the bank's asset quality and risk profile, benefiting the VR;
Bladex's national ratings are at the highest level of the national rating scale and therefore have no upside potential.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Debt - Issues in
Debt - Issues in
Government Support: Bladex's GSR indicates that external support, while possible, cannot be relied upon, given Fitch's view of
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The senior unsecured debt national ratings in
The senior unsecured debt national Long-Term rating in
Given the GSR is the lowest level in the scale, there is no downside potential for this rating.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
There is no upside potential of the senior unsecured debt national ratings, both in
As
VR ADJUSTMENTS
The Business Profile Score of 'bbb' has been assigned above the 'bb' category implied score due to the following adjustment reasons: Business Model (positive), Market Position (positive) and Strategy and Execution (positive).
The Asset Quality Score of 'bbb+' has been assigned below the 'a' category implied score due to the following adjustment reason: Concentrations (negative).
The Funding & Liquidity Score of 'bbb+' has been assigned above the 'b & below' category implied score due to the following adjustment reasons: Liquidity Coverage (positive) and Non-Deposit Funding (positive).
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
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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