Fitch Ratings has affirmed Banco Latinoamericano de Comercio Exterior, S.A.'s (Bladex) Long-Term Foreign Currency Issuer Default Rating (IDR) at 'BBB'; Short-Term IDR at 'F3' and Viability Rating (VR) at 'bbb'.

The outlook on the Long-Term IDRs remains Negative.

KEY RATING DRIVERS

IDRS and VR

The bank's IDRs and VR are highly influenced by the operating environment of the countries in which the bank does business, the development of its company profile and its low risk appetite. The affirmation of Bladex's ratings following the downgrade of Panama's sovereign ratings to 'BBB-' from 'BBB' reflect the international nature of Bladex's operations despite being domiciled in Panama. For additional details on the sovereign rating action, see 'Fitch Downgrades Panama's IDR to 'BBB-'; Outlook Negative' at www.fitchratings.com. Bladex's VR is one notch above Panama's sovereign rating because, according to Fitch's criteria, its high geographical diversification helps it to offset any potential negative impact of Panama's sovereign risks. The Rating Outlook for the long-term IDR remains Negative since it is aligned to the regional operating environment outlook, which reflects that the downside risks persist and could challenge the bank's financial profile given the remaining uncertainty in the pandemic's development and in the expected economic recovery in Latin America.

Bladex credit exposures are allocated in more than 25 countries, having increased its lending operations in countries rated by Fitch in investment grade to 55% of the total portfolio at 3Q20. Fitch has affirmed at 'bbb-' the score of Bladex's combined operating environment, based on its international operations, measured by its earning assets, its ability to reduce its exposure to riskier jurisdictions, as well as the temporary nature of the increase in its liquid assets.

Fitch believes that Bladex's business model is mature and mitigates certain risks of the operating environment, as it is based mainly on short-term trade financing and loans to financial institutions. However, it also implies an elevated concentration on large clients and a material reduction in the bank's balance sheet during stress periods, limiting the growth of its regional franchise. Bladex's conservative risk appetite has been reflected in the de-risking strategy executed in recent years and the increase of its liquidity and credit exposures in higher credit quality assets.

Bladex's financial profile during the pandemic has been good, reflected in the reduction of the NPLs ratio to zero and the strengthening of its capitalization and liquidity. However, Fitch's view the bank's asset quality is still sensitive to deterioration of individual clients due to its wholesale approach and high concentration per borrower. These risks are partially mitigated by the permanent monitoring of its clients and economic sectors, as well as a focus on top clients in each jurisdiction. Modified loans accounts for less than 0.5% of gross loans. Fitch expects the portfolio to resume growth in 2021, maintaining a conservative risk approach to avoid an increase in its NPLs to levels above the average of recent years (YE16-YE19 average of 1.1%), as loan quality still faces headwinds.

Bladex's profitability is stable but still low, reflecting the de-risking strategy and increased proportion of liquid assets in the balance sheet. The operating-profit-to-RWAs ratio was 1.3% at 3Q20 (YE16-YE19 average of 1.1%) and it could improve in 2021 given a return in credit growth and the measures taken by the bank to contain operating expenses and expand the net interest margin. However, its profitability level continues to be sensitive to increases in loan impairment charges due to a potential deterioration of clients.

Bladex sustain a strong capitalization since its CET1 ratio has increased to 26.5% at 3Q20, above YE16-YE19 average of 19.2%, and Fitch expects it to remain above 20% during 2021 due to the expected moderate recovery of credit and still high liquidity. Although this financial metric is higher compared to its peers, Fitch also considers the bank's high concentration per borrower, which is considered a negative deviation factor, in assessing Bladex's capitalization.

Bladex maintains diversified funding due to its good market access, broad institutional relationships and stable shareholder-based deposit base. All its financing lines increased during 2020, showing the bank's adequate capacity to raise funds. The bank's liquidity remains high and mainly placed in the New York Fed; however, a reduction is expected during 2021 to make its balance more profitable. Total deposits increased 5.9% at 3Q20, YTD and provide relatively good stability to the bank's funding. The liquidity coverage ratio (LCR) reached 1.7x at 3Q20 (regulatory minimum: 0.25x).

SUPPORT RATING AND SUPPORT RATING FLOOR

The bank's Support Rating and Support Rating Floor reflect Fitch's view that external support for the bank is possible but cannot be relied upon.

SENIOR UNSECURED DEBT NATIONAL RATINGS

Bladex's senior unsecured debt national rating in Mexico is based on its intrinsic creditworthiness in relation to other issuers in the Mexican market.

RATING SENSITIVITIES

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

Bladex's ratings could be downgraded if the risks of the current operating environment result in a significant deterioration of the loan portfolio quality, particularly if this pressures the operating profit to RWAs ratio to a level consistently below 1.0% and/or the CET1 ratio falls to a level consistently below 18.0%.

A change in the bank's risk appetite that leads it to increase its exposure in higher-risk countries or sectors and weaken Fitch's assessment of its operating environment, would trigger a downgrade of its ratings.

The senior unsecured debt national rating in Mexico has no outlook, but this rating could potentially be downgraded in the event of a downgrade of Bladex IDR's. This is because national ratings indicate credit quality relativities within a jurisdiction, in this case in terms relative to other debt issuers in Mexico.

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

Bladex's ratings could be affirmed and the Outlook revised to Stable if the de-risking process in the loan portfolio and commercial/pricing strategies mitigate the earnings volatility and high sensitivity to changes in the operating environment and/or asset quality changes and stabilizes the operating profit to RWAs ratio at a level above 1.0%.

There is no upside potential of the senior unsecured debt national rating in Mexico since this debt is at the highest level of the national rating scale.

As Panama is a dollarized country with no lender of last resort, an upgrade in Bladex's SR and SRF is unlikely.

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.

ESG CONSIDERATIONS

Banco Latinoamericano de Comercio Exterior, S.A.: Management Strategy: 4

BLADEX has an ESG relevance score of 4 for Management Strategy due to the need to rapidly adapt its overall strategy given its broad presence across the Latin American region as Bladex's profitability and financial performance is highly reliant of the management execution of the de-risking and loan quality control strategies, which has a positive impact on the credit profile, and is relevant to the ratings in conjunction with other factors .

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 ActionsENTITY/DEBT	RATING		PRIOR
Banco Latinoamericano de Comercio Exterior, S.A.	LT IDR	BBB 	Affirmed		BBB
	ST IDR	F3 	Affirmed		F3
	Viability	bbb 	Affirmed		bbb
	Support	5 	Affirmed		5
	Support Floor	NF 	Affirmed		NF

senior unsecured

Natl LT	AAA(mex) 	Affirmed		AAA(mex)

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Additional information is available on www.fitchratings.com

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