Fitch Ratings has affirmed
In addition, Fitch has affirmed the FC and LC Short-Term (ST) IDRs at 'B', Shareholder Support Rating (SSR) at 'bb' and Viability Rating (VR) at 'bb-'. Fitch has also affirmed the bank's National LT and ST Ratings at '
Key Rating Drivers
Shareholder Support-Driven Ratings: Davivienda CR's IDR and national ratings are based on Fitch's assessment of the capacity and propensity of its parent,
Ratings Constrained by Country Risk: With a high degree of influence, Fitch also considers the possible transfer and convertibility (T&C) risks, reflected in
The LT LC IDR of 'BB+' is equalized to its parent's LT FC IDR and two notches above
High Reputational Risk: In the evaluating of propensity to support, Fitch considers the huge reputational risk that the Davivienda group could face in the event of a possible default by its subsidiary in
Strategic Role in Group: In Fitch's support analysis, the key role that Davivienda CR has in the group's geographic diversification strategy by operating in a market considered strategic and with which it also shows operating synergies, carries moderate weight.
Well Established Business Profile: Davivienda CR's VR of 'bb-', equal to its implied VR, incorporates the agency's assessment of its business profile, which reflects the consistent and well-diversified business model between corporate and personal banking, as well as the moderate size of its franchise, being the second-largest private bank in
Risk Profile: The Risk Profile assessment, at the same level of the Costa Rican Operating Environment (OE), is influenced by the bank's sensitivity to exchange risk, given that the bank is characterized by the high percentage of its balance in
Good Asset Quality: Fitch upgraded Davivienda CR's asset quality score to 'bb' from 'bb-'. Fitch weighs within the VR, Davivienda CR's moderate risk appetite that has translated to a good and stable asset quality ratio, with a NPLs metric of 1.9% as of
Profitability Affected by Exchange Rate Volatility: Davivienda CR's profitability has been moderate in recent years, with an operating profit to risk-weighted assets (RWA) ratio of 1.5% on average from 2019 to 2022. However, as of
Adequate Capital Levels: Davivienda CR's capitalization ratios improved in recent years. As of
Stable and Diversified Funding Profile: Davivienda CR's funding and liquidity profiles are favored by its customer deposit base, which represented around 67% of total funding as of
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Negative changes in Davivienda CR's IDRs and SSR would mirror any movement in
Any perception by Fitch of the parent's significantly reduced propensity to support the subsidiary may trigger a downgrade of IDRs, SSR and national ratings;
A multi-notch downgrade of Davivienda's IDRs would also entail a downgrade in Davivienda CR's FC and LC IDRs, SSR and national ratings, while a one notch downgrade in Davivienda's IDRs would trigger a downgrade in Davivienda CR's LC IDR;
A downgrade of Davivienda CR's VR could result from a material deterioration of the banks' financial performance that drops its FCC/RWA ratio consistently below 9% alongside incurring in operating losses consistently.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Davivienda CR's FC IDR and SSR could be upgraded in the event of an upgrade of
Davivienda CR's VR could be upgraded in the event of an improvement in the local OE and if the bank continues with consistent financial performance metrics;
The bank's national scale ratings are at the top of the scale, and therefore there is no room for positive actions.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Senior Unsecured Debt: Unsecured senior debt is rated at the same level as Davivienda CR's national ratings, as Fitch considers that the probability of default of its debt is the same as that of the bank.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Senior unsecured debt national ratings would be downgraded in the case of negative rating actions on the bank's national ratings.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Debt issue programs national ratings are at the top of the scale. Therefore, there is no room to upgrade.
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 '
Summary of Financial Adjustments
Fitch reclassified prepaid expenses as intangibles and deducted them from equity to reflect their lower absorption capacity.
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
Davivienda CR's ratings are support-driven by 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.
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