Fitch Ratings has affirmed Multibank Inc.'s (Multibank) Long- and Short-Term Issuer Default Rating (IDR) at 'BB+' and 'B' respectively and its Viability Rating (VR) at 'bb+'.

Fitch has also affirmed the bank's National Long- and Short-Term Ratings at 'AA(pan)' and 'F1+(pan)', respectively. The Outlook for Long-Term Ratings is Stable.

Fitch has also withdrawn Multibank's Support Rating of '3' as it is no longer relevant to the agency's coverage following the publication of our updated Bank Rating Criteria on 12 Nov. 2021. In line with the updated criteria, Fitch has assigned Multibank's Shareholder Support Ratings (SSRs) of 'bb+'.

Key Rating Drivers

IDRs, NATIONAL RATINGS AND SENIOR DEBT

Multibank IDRs, national and senior unsecured debt ratings reflect Fitch Ratings' view of the propensity and ability of Banco de Bogota to provide support to Multibank should the need arise. The Stable Outlook on Multibank mirrors that on Banco de Bogota which indicates that Fitch expects any additional fallout from the pandemic to be manageable at current rating levels. Multibank's Long-Term IDR and Outlook are equalized with its ultimate parent, Banco de Bogota's Long-Term IDR at 'BB+', Outlook Stable.

Fitch considers with high importance that the propensity of Banco de Bogota to support Multibank derives from the relevant role of its only direct Panamanian subsidiary in the group's business model and regional strategy, providing key services in a market considered core. Additionally, Fitch's support assessment considers the reputational risk that the default of the recently acquired operation could involve, which could materially damage its franchise.

The ratings of Multibank's outstanding senior unsecured obligations are at the same level as the company's IDR and its National Ratings, as the likelihood of default of the obligations is the same as that of Multibank.

VR

Multibank's VR is highly influenced by the operating environment, any negative rating action on the sovereign or further deterioration of the operating environment will likely lead to a similar adjustment of this factor, reflecting its influence over the bank's financial profile. Multibank's VR of 'bb+' is one notch above the implied VR of 'bb' and considers as a positive adjustment reason the bank's business profile, which is a high importance factor for the rating given the bank's sound franchise, albeit of its medium size and benefits from strong customer relationships as it is integrated to Grupo Aval.

Fitch expects Multibank's capitalisation to remain adequate in 2022, driven by moderate assets growth, improvement in earnings, and sound reserves coverage. Multibank's common equity Tier 1 (CET1) capital ratio declined to 11.6% at 3Q21 from 12.2% at YE 2020, reflecting higher risk-weighted assets (RWA). However, this ratio compares better than the bank's average of 11.3% from 2017 to 2019 and favorably with the minimum regulatory requirements (4.5%). Loan loss allowances for impaired loans are sound, which further supports the bank's loss absorption capacity. Fitch's assessment also considers the ordinary support that could receive from its parent if need arises.

Overall, Multibank's loan portfolio quality evolved favorably during 2021. The 90-days NPL improved to 1.9% as of September 2021 (2020: 2.1%) thanks to a better than expected performance in the consumer loans after finalizing the relief period in Panama and by the improved commercial loan placement related to the still moderate economic reactivation. However, the negative trend is kept due to the relevant proportion of the modified portfolio, which as of September 2021 represented close to 25% of its gross loans, potentially leading to additional loan impairments.

Multibank's performance during 2021 improved thanks to decreasing loan impairment charges due to COVID-19 along with higher revenue streams and no longer having extraordinary expenses related to the acquisition by Grupo Aval, like those of 2020. Its operating profit/RWA ratio stood at 0.6% at 3Q21, above that of YE 2020 (-1.2%) but still below the average for 2017-2019 (2.0%) and compares lower than its local peers'.

Multibank benefits from a wide deposit base of well-diversified and stable funds. As of 3Q21, its loans to deposit ratio of 117% (2020: 105.7%) reflect the mild reduction of deposits by 2.8%, in line with the trend observed in the system. Historically, customer deposits have provided close to 70% of total funding. The bank's liquidity position is sound, as reflected in a liquid asset to deposits ratio above 35% for the last four periods. Fitch expects liquidity to remain sound, no significant reductions in deposits are expected in the medium term as deposits relationships are strengthened by belonging to a strong regional group.

Rating Sensitivities

Factors that could, individually or collectively, lead to negative rating action/downgrade:

A downgrade of Multibank's IDR and National Ratings could be possible only if both its VR and Banco de Bogota's IDRs are downgraded;

A downgrade of Multibank's SSR could result from a downgrade of Banco de Bogota's IDR or from a reduced propensity of Banco de Bogota to support its subsidiary, both of which are unlikely at present;

Multibank's senior unsecured debt would mirror any potential downgrade on its IDRs;

Multibank's VR could be downgraded as a result of a sustained deterioration of profitability (operating profit to RWAs below 0.5%) and asset quality ratios that undermine the bank's financial performance, driving a decline in its CET1 ratio consistently below 10% that leads to downgrade the Business Profile assessment score.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Positive rating actions on Multibank's IDR, National Ratings and SSR could be driven by positive rating actions on Banco de Bogota's IDR;

Positive rating actions on Multibank's IDR and National Ratings could be driven by positive rating action on its VR;

Multibank's VR could be upgraded upon the sustained strengthening of the Business Profile and of its capitalization levels, showing a CET1 of at least 15%;

Multibank's senior unsecured debt would mirror any potential upgrade on the bank's ratings.

VR ADJUSTMENTS

The VR of 'bb+' has been assigned above the implied VR of 'bb' due to the following adjustment reason(s): Business Profile (positive).

The Business Profile score has been assigned above the implied score due to the following adjustment reason(s): Business Model (positive), Group Benefits and Risks (positive).

The Earnings & Profitability score has been assigned in line with the implied score. Historical and Future Metrics was identified as a relevant positive factor in the assessment.

The Capitalisation & Leverage score has been assigned above the implied score due to the following adjustment reason(s): Capital Flexibility and Ordinary Support (positive), Internal Capital Generation and Growth (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 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

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

Multibank's IDRs are driven by the potential support it could receive from its parent, Banco de Bogota, S.A. if required.

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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