Banistmo, S.A. -- Moody's rates Baa3 Banistmo's proposed senior unsecured notes; outlook stable
Rating Action: Moody's rates Baa3 Banistmo's proposed senior unsecured notes; outlook stable
Global Credit Research - 22 Jul 2020
New York, July 22, 2020 -- Moody's Investors Service, ("Moody's") has today assigned a Baa3 long-term foreign currency debt rating to Banistmo, S.A. (Banistmo)'s proposed senior unsecured 144A/Reg S notes for up to $500 million. Banistmo will use the proceeds of the notes for general corporate purposes, including funding the bank's loan growth and the refinancing of maturing debt obligations.
Moody's has also assigned Banistmo a baa3 baseline credit assessment (BCA) and adjusted BCA, Baa3/Prime-3 long- and short-term foreign currency deposit ratings and Baa2/Prime-2 long- and short-term foreign currency counterparty risk ratings. The outlook on Banistmo's ratings is stable.
The following ratings and assessments were assigned to Banistmo, S.A.:
Baseline Credit Assessment, assigned baa3
Adjusted Baseline Credit Assessment, assigned baa3
Long and short-term foreign currency deposit rating, assigned Baa3 stable/P-3
Long and short-term foreign currency Counterparty Risk Rating, assigned Baa2/P-2
Long and short-term Counterparty Risk Assessment, assigned Baa2(cr)/P-2 (cr) Outlook Actions: ..Issuer: Banistmo, S.A. ....Outlook, Assigned Stable
The following ratings were assigned to Banistmo, S.A.'s proposed foreign currency 144A/Reg S senior notes of up to $500 million:
Long term foreign currency senior unsecured debt rating, assigned Baa3 stable
RATINGS RATIONALE
Banistmo's baa3 Baseline Credit Assessment (BCA) reflects the bank's strong capitalization supported by continued earnings retention in recent years, and its favorable funding structure based on a stable and granular deposit base, which reduces liquidity risks considering the bank's moderate liquidity buffers. Banistmo's credit profile is, however, constrained by its weak asset quality evidenced by continued above-peers non-performing loan ratios, and by modest profitability reflecting the challenges brought about by the economic impact of the coronavirus outbreak in Panama.
Banistmo's Baa3 deposit and debt ratings are derived from its baa3 BCA. We assess a high probability of support to the bank's deposit and debt ratings from its ultimate parent Bancolombia S.A. (Baa2 stable, ba1) in case of need. However, Banistmo's ratings do not benefit from uplift from affiliate support, considering that the anchor point for assessing the ability of the parent to provide support, its BCA, is one-notch lower than Banistmo's, at ba1. Banistmo, which was acquired by Bancolombia S.A. in 2013, is a diversified commercial and consumer lender based in Panama and a relevant subsidiary of the parent, representing about 15% of its total consolidated assets. Banistmo also benefits from Bancolombia's management expertise, risk management and compliance practices, new product development , and measures for operational efficiency, among others.
Banistmo is the second largest lender in Panama with an 11% market share in terms of loans and 12% in terms of deposits, serving around 470,000 customers. The bank holds significant market shares in most loan segments, being particularly strong in the construction sector (21% market share). Banistmo's loan asset class diversification is roughly in line with that of the Panamanian banking system -albeit with a higher exposure to the construction sector- with the bank's main segments being residential mortgages (30% of total loans as of March 2020), construction (15%), industrial (10%), commercial (9%), personal loans (8%) and small and medium enterprises (SMEs) (7%).
Banistmo's asset quality had weakened before the outset of the pandemic, as evidenced by its 90 day past due loans increasing to 3.7% of total gross loans in March 2020, from 2.9% as of 2019 year-end. Moreover, problem loans measured as loans classified as stage 3 under IFRS 9 reached 7.6% of gross loans as of March 2020, the result of certain impaired construction loans for which the bank holds high levels of guarantees. Most of the asset quality deterioration has been associated with the real estate sector, while its consumer segment has maintained reasonably sound asset quality.
High asset risks are offset by Banistmo's adequate loan loss reserves, at 110% of past due loans as of March 2020. Under the government´s relief program for borrowers affected by the COVID-19 crisis, which requires payment deferrals until the end of 2020 for some loans, Banistmo has provided tenor extensions to about 53% of its loan book, in line with the system's average. We expect the restructured loan book and the impact on borrowers' repayment capacity of the economic downturn to cause further deterioration on the bank's asset quality for the remaining of 2020 and early 2021, although the expected strong economic recovery in Panama for 2021 will likely help stabilize delinquencies in the medium term.
Banistmo's capital position is a key credit strength, which we expect will sustain its credit profile amid negative pressure from the pandemic. As of March 2020, the bank's capitalization ratio, measured as tangible common equity (TCE) to Moody's adjusted risk-weighted assets (RWA) was 13.5%. Continued earnings retention, reflecting the commitment of shareholders to the bank's financial flexibility and franchise and prudent loan growth have supported overall stable capital position. Capitalization ratios have remained sound following the increase in expected loss provisioning as per the introduction of IFRS 9 in 2018, and the introduction in Panama of increased capital requirements for market and operational risks in 2019.
The bank's profitability is moderate and below peers due to higher provision costs, in line with recent and expected asset risk pressures. However, the bank's inexpensive funding boosts its ample net interest margins, which at an annualized 3.3% as of March 2020, is among the highest in the system. Banistmo has stable sources of fee income, which accounts for about 15% of net revenues, and improving operating efficiency, both of which have supported profitability in recent years. We expect the current adverse economic environment in Panama to hurt Banistmo's profitability in 2020, as for other banks in the system because of higher credit costs associated to asset deterioration. Over the medium-term, Banistmo inexpensive funding and diversified loan book will help sustain its ample margins, supporting its profitability prospects.
Banistmo's relatively inexpensive, granular, and more stable retail deposits are another key credit strength. Market funding, which accounts for 19.7% of tangible assets as of March 2020, is also diversified between global and local issuances, bank borrowings and interbank deposits, reducing refinancing risks. Banistmo's funding profile mitigates potential pressure on its moderate liquidity profile, with liquid assets representing 17.8% of tangible assets as of March 2020, which is below peers.
We do not have any particular concerns with Banistmo's governance. The bank shows an appropriate risk management framework commensurate with its risk appetite and in line with risk management policies and provisioning adopted by its parent bank, Bancolombia.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward pressures on Banistmo's ratings could be triggered by a sustained improvement in its asset risk profile, which could in turn support increased and sustainable profitability, as credit costs decline, leading to an improved capital replenishment capacity. In addition, a strengthening of the bank's liquidity profile could also exert positive pressure on its BCA and ratings.
Downward pressure on the bank's BCA could arise from continuing weaknesses in its main credit metrics, beyond the expected asset quality deterioration caused by the pandemic. Particularly, a continued and larger than expected asset risk deterioration, especially if it drives a sustained reduction on the bank's capital base, could lead to a downgrade of the bank's BCA and ratings.
The principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Marcelo De Gruttola Asst Vice President - Analyst Financial Institutions Group M. Celina Vansetti-Hutchins MD - Banking Financial Institutions Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY'S (COLLECTIVELY, "PUBLICATIONS") MAY INCLUDE SUCH CURRENT OPINIONS. MOODY'S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY'S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY'S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS ("ASSESSMENTS"), AND OTHER OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.
MOODY'S CREDIT RATINGS,ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT.
MOODY'S CREDIT RATINGS,ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.
All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.
To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY'S.
To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.
NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER.
Moody's Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody's Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody's Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and Moody's investors Service also maintain policies and procedures to address the independence of Moody's Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody's Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy."
Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody's Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY'S that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761G of the Corporations Act 2001. MOODY'S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.
Additional terms for Japan only: Moody's Japan K.K. ("MJKK") is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody's Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody's SF Japan K.K. ("MSFJ") is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization ("NRSRO"). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.
MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.
MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.
