08 SEP 2022
Fitch Affirms COFIDE's IDRs at 'BBB'; Outlook Stable
Fitch Ratings - Monterrey - 08 Sep 2022: Fitch Ratings has affirmed the Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) of Corporacion Financiera de Desarrollo S.A. (COFIDE) at 'BBB'. The Rating Outlook Is Stable. A full list of rating actions follows at the end of this release.
The affirmation of COFIDE's IDRs reflects Fitch's unchanged view of potential support, if needed, from the government of Peru.
Fitch has withdrawn COFIDE's Support Rating and Support Rating Floor of '2' and 'BBB', respectively, as they are no longer relevant to the agency's coverage following the publication of Fitch's updated Bank Rating Criteria on Nov. 12, 2021. In line with the updated criteria, Fitch has assigned a Government Support Rating (GSR) of 'bbb'.
Key Rating Drivers
IDRs AND SENIOR DEBT
COFIDE's IDRs and senior debt ratings reflect Fitch's expectation that the entity would receive support from the Peruvian government if needed. In Fitch's view, COFIDE is a key policy bank for the government, as it is critical in implementing economic and social development policies. Peru's ability to offer support is reflected in its sovereign rating (BBB/Stable); although the government does not extend an explicit guarantee, ratings are equalized given that the state is the majority shareholder and the bank has operational and financial synergies with the public administration.
For the Peruvian government, COFIDE plays a key role as a development bank focused in infrastructure, economic and social welfare. The bank plays a critical role in implementing policies directed at sectors with limited funding access or projects underserved by commercial banks. During the pandemic, the bank had a crucial role in the Peruvian handling of the economy by managing key funds, such as Reactiva or FAE, created to support SMEs, which further supports Fitch's view on the entity's relevant policy role.
Although COFIDE's ratings are based purely on Fitch assessment of expected government support, the financial profile is still relevant to the agency's appreciation about the policy role of the entity for the government. COFIDE's financial performance reflects its development bank nature where profitability is not the main goal but the operation is well supported by good capital metrics.
Profitability has been typically weak, as reflected in its four-year average ratio of operating profit to risk-weighted assets of 0.5%. Asset quality reflects the risks posed by high per borrower concentrations which drove an average non-performing loan ratio of 7.6% over the past four years, although provision
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coverage is adequate. The latter, along with a good FCC ratio of around 20% strengthen its loan loss absorption capacity.
Given COFIDE's development nature, Fitch does not expect a significant change in financial performance in the foreseeable future.
GSRs
In Fitch's opinion, the bank's Government Support Rating of 'bbb', in line with the sovereign, reflects the high propensity of the Peruvian government to support, given the bank's ownership structure and policy role. The government's current ability to support is reflected in the sovereign's IDR of BBB. GSR indicates the minimum level to which the entity's Long-Term IDRs could fall if Fitch does not change its view on potential sovereign support.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/ downgrade:
IDRS, GSR AND SENIOR DEBT
--COFIDE's ratings will mirror any potential negative change in Peru's sovereign ratings;
--Although not a baseline scenario, the ratings could change if Fitch perceives a decrease in the bank's strategic importance to the government's public policies.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
IDRS, GSR AND SENIOR DEBT
--An upgrade is highly unlikely in the near future as the IDRs and GSR are constrained by the sovereign rating, which currently has a Stable Outlook;
--Positive rating actions will mirror any potential positive change in Peru's sovereign rating.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Fitch affirmed the senior debt issuances at the same level as its Long-Term IDRs, as the notes' likelihood of default is the same as COFIDE's.
COFIDE's subordinated bonds are plain vanilla, and, in Fitch's opinion, their probability of non- performance is equivalent to that of COFIDE's senior bonds, but they would incur a higher loss in case of default due to their subordinated nature. Considering the subordinated debt's features, Fitch does not believe there is a meaningful source of loss severity mitigation for these securities upon default, and so they are rated two notches below the bank's IDR.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
RATING SENSITIVITIES
--The bank's subordinated notes are sensitive to any positive or negative change in COFIDE's ratings.
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
Summary of Financial Adjustments
All intangible assets were deducted from total equity to obtain the Fitch Core Capital since the agency believes the capacity for these to absorb losses is low.
Sources of Information
The main sources of information used in the analysis are described in the Applicable Criteria.
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
Corporacion Financiera de Desarrollo S.A. ratings are support driven from the Peruvian sovereign rating.
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.
Fitch Ratings Analysts
Ricardo Aguilar
Director
Primary Rating Analyst +52 81 4161 7086
Fitch Mexico S.A. de C.V. Prol. Alfonso Reyes No. 2612, Edificio Connexity, Piso 8, Col. Del Paseo Residencial, Monterrey 64920
Andres Marquez
Senior Director Secondary Rating Analyst +57 601 241 3254
Theresa Paiz-FredelSenior Director Committee Chairperson +1 212 908 0534
Media Contacts
Elizabeth Fogerty
New York
+1 212 908 0526 elizabeth.fogerty@thefitchgroup.com
Rating Actions
ENTITY/DEBT | RATING | RECOVERY | PRIOR | ||||
Corporacion | |||||||
Financiera de | LT IDR | BBB | Affirmed | BBB | |||
Desarrollo | |||||||
S.A. (COFIDE) | |||||||
ST IDR | F2 | Affirmed | F2 | ||||
LC LT IDR | BBB | Affirmed | BBB | ||||
LC ST IDR | F2 | Affirmed | F2 | ||||
Support | WD | Withdrawn | 2 | ||||
Support | WD | Withdrawn | BBB | ||||
Floor | |||||||
Government | bbb | New Rating | |||||
Support | |||||||
ENTITY/DEBT | RATING | RECOVERY | PRIOR | |
• senior | LT | BBB | Affirmed | BBB |
unsecured |
• subordinatedLT | BB+ | Affirmed | BB+ |
RATINGS KEY OUTLOOK WATCH
POSITIVE
NEGATIVE
EVOLVING
STABLE
Applicable Criteria
Bank Rating Criteria - Effective from 12 November 2021 to 7 September 2022 (pub.12 Nov 2021) (including rating assumption sensitivity)
Additional Disclosures
Solicitation Status
Endorsement Status
Corporacion Financiera de Desarrollo S.A. (COFIDE) | EU Endorsed, UK Endorsed |
DISCLAIMER & DISCLOSURES
All Fitch Ratings (Fitch) credit ratings are subject to certain limitations and disclaimers. Please read these limitations and disclaimers by following this link: https://www.fitchratings.com/ understandingcreditratings. In addition, the following https://www.fitchratings.com/rating-definitions-document details Fitch's rating definitions for each rating scale and rating categories, including definitions relating to default. ESMA and the FCA are required to publish historical default rates in a
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COFIDE - Corporación Financiera de Desarrollo SA published this content on 08 September 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 08 September 2022 22:29:07 UTC.