BANCO DAVIVIENDA S.A.
Fitch Ratings has affirmed
The Rating Outlook for the Long-Term IDRs is Stable. Fitch has also affirmed
Key Rating Drivers
Viability Rating Drives Issuer Default Ratings: Davivienda's IDRs are driven by the bank's VR and consider its intrinsic strength, as reflected in its sound company profile due to its domestic franchise as the second largest bank in
The Rating Outlook on the Long-Term IDRs is Stable. Despite operating environment (OE) pressures, which include a slowdown of GDP, high inflation, as well as domestic macro and political uncertainty, Davivienda's core financial metrics have sufficient headroom to maintain its current ratings.
Fitch expects the operating environment for Colombian banks to remain stable and consistent with the 'bb' factor score, despite its expectation for slowing GDP growth in 2023 and a sharp rise in interest rates throughout 2022 to address high inflation. Fitch believes sustained capitalization, improving profitability and lower loan impairment charges provide sufficient resilience to face stress for the banks.
Consolidated Franchise: Davivienda has a leading franchise in the Colombian mortgage and retail segments and ranks among the top players in Corporates and the Central American market, which explains its business profile score of 'bbb-'. The bank's business model benefits from geographical and revenues diversification, as well as continuous efforts to develop cutting edge digital technologies, generating stable earnings over time.
Sound Asset Quality: Fitch expects asset quality pressures over the near term due to the bank's higher exposure to consumer loans and a challenging OE for 2023. However, loan deterioration should move around 4% at YE 2023 above 2.9% at
Resilient Profitability: Davivienda's profitability is underpinned by its resilient performance supported by adequate cost control, a consolidated franchise and geographical diversification. Fitch expects profitability core metric ratio of operating profit to RWAs contract to 2.1% at YE 2023 from roughly 2.5% at YE 2022 and maintain the score in the 'bb' range. High interest rates during first part of 2023 should benefit Davivienda's net interest margin (NIM) but are likely to be offset partly by higher funding costs, limited business growth, a rise in impairment expenses, and inflation will continue pressure operating expenses in fiscal 2023 as well.
Adequate Capital Metrics: Fitch views the bank's capital as sufficient considering its relatively ample loan loss reserves, good asset quality, recurrent earnings generation and adequate risk management. Asset growth, profit recovery and currency depreciation have driven the capital's performance during 2022. The agency expects common equity Tier 1 (CET1) ratio to remain around 11% over the next two years with a capital score of 'bb-', commensurate with its planned growth and financial performance. CET1 plus additional Tier 1 ratio was 12.8% at
Diversified and Stable Funding: Davivienda boasts a wide deposit base of well-diversified, stable and relatively low-cost funds and good liquidity. Fitch expects deposit base and regular access to capital markets continue boosting loan growth. Conservative liquidity policies and a consolidated market position will allow to fulfil regulatory liquidity ratios above 100%. The factor score remains at 'bb+'. Its loans-to-deposits ratio of around 122% at
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
VR, IDRs AND NATIONAL RATINGS
Davivienda's VRs and IDRs are sensitive to a material deterioration in the local operating environment or a negative sovereign rating action;
The ratings could be downgraded from a continued deterioration of the operating environment 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 if the CET1 ratio falls consistently below 10%.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
VR, IDRS AND NATIONAL RATINGS
Given the limitations of the operating environment, a ratings upgrade is unlikely in the medium term;
Over the longer term, the rating could be upgraded by the confluence of an improvement of the OE and the bank's financial profile.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Davivienda's AT1 notes are rated four notches below Davivienda's VR. The notching reflects the notes' higher loss severity in light of their deep subordination, and additional non-performance risk relative to the VR, given the high write-down trigger of CET1 at 5.125% and full discretion to cancel coupons. The debt has thus been affirmed due to the affirmation of Davivienda's VR.
Davivienda's local subordinated debt is rated two notches below its National Long-Term rating; two notches for loss severity (-2) and zero notches for non-performance risk (0), given the terms of the issuances (plain-vanilla subordinated debt).
Davivienda's local senior unsecured bonds are rated at the same level as the bank's National Long-Term rating, considering the absence of credit enhancement or any subordination feature.
GB's local senior unsecured bonds are rated at the same level as the bank's National Long-Term rating, considering the absence of credit enhancement or any subordination feature.
GOVERNMENT SUPPORT RATING
The bank's Government Support rating of 'bb' reflects Davivienda's size, systemic importance and the country's historical support policy. Fitch believes there is a high probability of sovereign support.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Davivienda junior subordinated debt ratings will mirror any action on the bank's VR.
Davivienda local senior debt ratings would move in line with its National Long-Term rating.
Davivienda local subordinated debt ratings would move in line with its National Long-Term rating.
GB local senior debt ratings would move in line with its National Long-Term rating.
Davivienda's GS are potentially sensitive to any change in assumptions as to the propensity or ability of
SUBSIDIARIES & AFFILIATES: KEY RATING DRIVERS
GRUPO BOLIVAR NATIONAL RATINGS AND SENIOR DEBT
GB's national ratings reflect the creditworthiness of its main subsidiary,
SUBSIDIARIES AND AFFILIATES: RATING SENSITIVITIES
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 result in a sustained deterioration of its debt coverage ratios could pressure GB's ratings.
GB's national scale ratings are at the highest level on the national scale; therefore, they cannot be upgraded.
VR ADJUSTMENTS
The Business Profile score has been assigned above the implied score due to the following adjustment reason(s): Business Model (positive).
The Capitalization & Leverage score has been assigned above the implied score due to the following adjustment reason(s): Core Capital Calculation (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.
Public Ratings with Credit Linkage to other ratings
Grupo Bolivar's ratings are driven by the rating of its main subsidiary,
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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