Fitch Ratings-New York/San Salvador-24 August 2016: Fitch Ratings has affirmed the ratings for Banco BAC San Jose, S.A. (BAC San Jose) including the Long-Term Foreign Currency Issuer Default Rating (IDR) at ‘BBB-‘ and Long-Term Local Currency IDR at ‘BBB’. A full list of ratings follows at the end of this press release.

KEY RATING DRIVERS

IDRs, NATIONAL RATINGS AND SENIOR DEBT
Banco BAC San Jose, S.A.’s (BAC San Jose) Foreign and Local Currency IDRs, as well as its National Ratings are driven by the support it would receive from its parent, Banco de Bogota (‘BBB/F2’/Negative Outlook), if needed. Fitch considers BAC San Jose a core subsidiary for the Central American operation.

BAC San Jose’s Negative Outlook is also aligned with Costa Rica’s Sovereign Rating Outlook given its high level of influence over the financial sector and the broader operating environment.

BAC San Jose’s senior debt rating is equivalent to the bank’s IDR as the debt is senior unsecured.

VR
BAC San Jose’s VR is limited by its operating environment. Fitch also considers the bank’s good franchise and consistent financial performance, underpinned by its recurring and well-diversified revenue base as well as by its adequately managed operating and credit costs. The VR also factors the bank’s resilient asset quality despite high dollarization, adequate capitalization and broad deposit base.

BAC San Jose stands out for its strong operating efficiency with a cost-to income ratio below 40% during the first quarter of 2016. Operating profits on risk weighted assets has remained close to 3% as of March 2016 and over the past four years.

As of March 2016, BAC San Jose’s non-performing loans to gross loans stood at 0.7% reflecting its good underwriting standards. However write-offs increased to 2.5% of average gross loans in the first quarter, though Fitch views this level as moderate given the high proportion of credit card and consumer loans. Concentrations by individual borrower remain low (as the largest 20 exposures accounted for 0.9x equity). Potential credit risk comes from its high exposure to dollar-denominated loans to clients that do not generate income in the same currency (60.1% of loans).

In Fitch’s opinion, BAC San Jose’s capital and liquidity levels are adequate. As of March 2016, Fitch Core Capital to risk weighted-assets (FCC) stood at 13.9%. BAC San Jose’s funding is primarily short-term, although its broad deposit base has proven to be stable, somewhat mitigating maturity mismatches from the growing mortgage loan portfolio. Liquidity is also enhanced by an adequate contingency liquidity plan. ]

BAC San Jose is the largest private bank in Costa Rica with a leading franchise in the credit card and acquiring business, underpinned by its cross-selling strategy with commercial loans, mortgages, consumer loans, payroll payments and treasury management services.

SUPPORT RATING
The bank’s Support Rating (SR) of ‘2’ reflects Banco de Bogota’s high probability of providing support to BAC San Jose if required, given the core role of the subsidiary for its parent.

RATING SENSITIVITIES

IDRs, NATIONAL RATINGS AND SENIOR DEBT

There is no upside potential given the sovereign’s Negative Outlook. BAC San Jose’s IDRs could be downgraded if Costa Rica’s Sovereign Rating and Country Ceiling are downgraded. In addition, the IDRs and National Ratings could change if Fitch’s assessment of Banco de Bogota’s ability or willingness to support its subsidiaries changes. BAC San Jose’s senior unsecured debt would mirror any potential downgrade on the bank’s National Scale Ratings.

VR
BAC San Jose’s VR could be downgraded if Costa Rica’s Sovereign Rating is downgraded, due to its high exposure to sovereign risk. It can also be pressured downwards if asset quality and profitability consistently deteriorates (operating profit to RWAs below 2%) or if the FCC ratio is sustained below 11%.

SUPPORT RATING
Any change in Fitch’s perception towards the strategic importance of BAC San Jose to its parent may trigger a review of its Support Rating.

Fitch has affirmed BAC San Jose’s ratings as follows:

International Ratings
–Long-Term Foreign Currency IDR at ‘BBB-‘; Outlook Negative;
–Short-Term Foreign Currency IDR at ‘F3’;
–Long-Term Local Currency IDR at ‘BBB’; Outlook Negative;
–Short-Term Local Currency IDR at ‘F3’;
–Support Rating at ‘2’;
–Viability Rating at ‘bb+’.

National Ratings
–Long-Term National Rating at ‘AAA(cri)’; Outlook Stable;
–Short-Term National Rating a ‘F1+(cri)’;
–Programa de Bonos BSJ-2011 Colones at ‘AAA(cri)’;
–Programa de Bonos BSJ-2011 Dolares at ‘AAA(cri)’;
–Programa de Papel Comercial BSJ-2011 Colones at ‘F1+(cri)’;
–Programa de Papel Comercial BSJ-2011 Dolares at ‘F1+(cri)’.
–Programa de Bonos BSJ-2015 Colones at ‘AAA(cri)’;
–Programa de Bonos BSJ-2015 Dolares at ‘AAA(cri)’;
–Programa de Papel Comercial BSJ-2015 Colones at ‘F1+(cri)’;
–Programa de Papel Comercial BSJ-2015 Dolares at ‘F1+(cri)’.