Fitch Ratings has upgraded
These rating actions followed the recent upgrade of
Fitch also revised its assessment for
The national ratings of Davivienda Sal and its holding, as well as those of other financial institutions rated in
Key Rating Drivers
Parent Support-Driven Ratings: Davivienda Sal's IDRs are underpinned by its SSR, denoting Fitch's opinion of the strong ability and propensity of its shareholder
Country Risks Constrain Support: Fitch's assessment of the owner's ability to support remains heavily influenced by
Significant Reputational Risk: The agency deems in its support analysis, with high importance, the huge reputational risk that a potential default by Davivienda Sal would represent for Davivienda and subsidiaries, severely damaging the franchise in the region.
OE Strongly Influences VR: Davivienda Sal's VR of 'ccc+' is below its implied score of 'b-', reflecting Fitch's view that Salvadoran bank credit profiles are highly exposed to OE risks and are constrained by
Robust Business Profile with Consistent Performance: Davivienda Sal's VR considers its strong local position, with a market share of 14.8% of loans as of
Capital Levels and Funding Structure: In 2022, the
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Negative changes in the bank's Long-Term IDR and SSR would mirror negative movements in
Davivienda Sal's Long-Term IDR and SSR could be downgraded following a multi-notch downgrade of Davivienda's IDRs; however, this scenario is unlikely over the rating horizon given the parent's Stable Outlook;
Any perception by Fitch of a relevant reduction of the strategic importance of Davivienda Sal for its parent could trigger a downgrade of its SSR and IDR;
The bank's Short-Term IDR would only be downgraded if its Long-Term IDR were downgraded to 'CCC+' or below, which is unlikely given the Stable Outlook on the bank's Long-Term IDR.
A downgrade of
Davivienda Sal's VR could also be downgraded due to lower earnings, specifically if it affects the operating profit to RWA ratio, resulting in consistent operating losses. A FCC-to-RWA ratio consistently below 10% also would also pressure the VR.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Davivienda Sal's VR, Long-Term IDR and SSR could be upgraded following an upgrade of
The upside potential for Davivienda Sal's VR is limited due to Fitch's OE assessment. Davivienda Sal's VR could only be upgraded over the medium term given an improvement of the OE, while maintaining its good business and financial profiles.
VR ADJUSTMENTS
The Viability Rating of 'ccc+' has been assigned below the 'b-' implied VR, due to the following adjustment reason: Operating Environment/Sovereign Rating Constraint (negative).
The Operating Environment score of 'ccc+' has been assigned below the implied score of 'b', due to the following adjustment reason: Sovereign Rating (negative).
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 the total equity to reflect their low 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 Sal's IDRs and SSR are based on the potential support it would receive from its parent,
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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