Fitch Ratings has affirmed
The Rating Outlook for the Long-Term IDRs is Negative. Fitch has also affirmed
The Negative Outlook on Davivienda reflects the increased downside risks from the economic implications of the coronavirus pandemic, reflected in the Negative Outlook for the operating environment score. It also incorporates the Negative Outlook on the sovereign rating as Fitch is unlikely to rate banks in
KEY RATING DRIVERS
VR, IDRS, NATIONAL RATINGS AND SENIOR DEBT
Davivienda's IDRs are driven by the bank's VR and primarily reflect the relevant change in the operating environment, brought on by the spread of coronavirus, as well as its company profile characterized by a sound franchise in which its businesses operate. In Fitch's view, the bank enters this economic crisis from a relatively good position, underpinned by recurring moderate profitability, good asset quality and solid liquidity. However, the agency expects the bank's financial metrics to weaken relative to its historical performance.
Davivienda has reported sound asset quality indicators through the cycles, though future credit losses are uncertain as the ultimate effects from the pandemic are difficult to foresee. The level of the bank's past due loans has remained relatively stable at around 3.0% of gross loans over the 3 years ending in 2020, and the take-up rate for payment relief initiatives has gradually decreased to 7% of gross loans as of
Reserve coverage has steadily increased to 2.2 times (x) as of
Fitch expects Davivienda's profitability to be tested in 2020 and part of 2021 given the pandemic's economic impact, as we expect a sustained deceleration in loan growth and increase in provisioning expenses. The recession has pressured credit costs, with loan impairment charges consuming 85% of pre-impairment operating profit at
Davivienda's profitability is underpinned by its resilient performance supported by adequate cost control, digital transformation, a consolidated franchise and geographical diversification. Fitch's core metric ratio of operating profit to RWAs of 0.58% at
Fitch views the bank's loss absorption as sufficient considering its relatively ample loan loss reserves, good asset quality, recurrent earnings generation and adequate risk management. The bank's
Davivienda boasts a wide deposit base of well-diversified, stable and relatively low-cost funds and good liquidity. Customer deposits consistently provide over 74% of total funding. Additionally, Davivienda has established market access to international and local debt markets. Its loans/deposits ratio of around 125% at
Davivienda's subsidiaries are funded independently in their home markets and must be self-sufficient to avoid contagion effect. Fitch does not anticipate major effects from the coronavirus in its evaluation of the funding and liquidity score. Fitch considers Davivienda's reported liquidity coverage ratio of 155% and NSFR of 108% as prudent under current stressed conditions.
SUPPORT RATING AND SUPPORT RATING FLOOR
Fitch has affirmed the bank's Support Rating (SR) of '3' and Support Rating Floor (SRF) of 'BB+', reflecting the agency's estimation of a moderate probability of sovereign support, if required, given the bank's systemic importance. The ability of the sovereign to provide support is based on its 'BBB-' Long-term IDRs, which have Negative Rating Outlooks.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Davivienda's subordinated debt is rated two notches below its VR; one notch for loss severity (-1) and one notch for non-performance risk (-1), given the terms of the issuances (plain-vanilla subordinated debt).
GRUPO BOLIVAR NATIONAL RATINGS AND SENIOR DEBT
GB's National Ratings reflect the creditworthiness of its main subsidiary,
RATING SENSITIVITIES
VR, IDRS, NATIONAL RATINGS AND SENIOR DEBT
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Davivienda's VRs and IDRs are sensitive to any further rating actions on
The Rating Outlook implies that ratings could be downgraded from a continued deterioration of the operating environment due to an extended period of economic disruption as a result of the coronavirus that leads to a significant deterioration of the asset quality and/or profitability (Operating profit to RWA consistently below 1.5%), resulting in an erosion of capital cushions.
Davivienda's ratings could be downgraded if the FCC ratio falls consistently below 10%.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The ratings currently have a negative outlook, which makes an upgrade highly unlike in the near future as the banks' IDRs are constrained by the sovereign rating, while the VRs are constrained by the worsening operating environment.
Rating Outlook could be revised to Stable if the operating environment stabilizes and if the bank is in a good path to sustain or rebuild capital metrics and profitability toward pre- pandemic levels.
SUPPORT RATING AND SUPPORT RATING FLOOR
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Davivienda's SR and SRF are potentially sensitive to any positive change in assumptions as to the propensity or ability of
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Davivienda's SR and SRF are potentially sensitive to any negative change in assumptions as to the propensity or ability of
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Subordinated debt ratings will mirror any action on the bank's VR.
SUBSIDIARY AND AFFILIATED COMPANIES
GRUPO BOLIVAR NATIONAL RATINGS AND SENIOR DEBT
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
The national scale ratings of GB's are at the highest level on the national scale; therefore, they cannot be upgraded.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
GB's National ratings will mirror any action taken on Davivienda's national ratings. Additionally, a substantial increase of GB's leverage (double leverage above 120%) or a decline in the dividend flows from the operating companies that results in a sustained deterioration of its debt coverage ratios could pressure GB's ratings.
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.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Grupo Bolivar ratings are support driven from Davivienda.
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
RATING ACTIONS
ENTITY/DEBT RATING PRIOR
Grupo Bolivar S.A. Natl LTAAA (col) AffirmedAAA (col)
Natl ST F1+(col) Affirmed F1+(col)
senior unsecured
Natl LTAAA (col) AffirmedAAA (col)
senior unsecured
Natl LTAAA (col) AffirmedAAA (col)
Banco Davivienda S.A. LT IDR BBB- Affirmed BBB-
ST IDR F3 Affirmed F3
LC LT IDR BBB- Affirmed BBB-
LC ST IDR F3 Affirmed F3
Natl LTAAA (col) AffirmedAAA (col)
Natl ST F1+(col) Affirmed F1+(col)
Viability bbb- Affirmed bbb-
Support 3 Affirmed 3
Support Floor BB+ Affirmed BB+
senior unsecured
LT BBB- Affirmed BBB-
subordinated
LT BB Affirmed BB
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
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