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Standard & Poor's
Ratings Services' ratings on Banco Internacional de Costa Rica S.A.
(BICSA) are constrained by the concentration in the bank's loan and
deposit base in Central American nations with long-term sovereign
ratings in the 'BB' category, the more-adverse economic conditions
in these countries, and the bank's relatively low profitability.
However, the ratings are supported by the short-term nature of
BICSA'a portfolio, its focus on trade-finance, and improvements in
management. We consider BICSA a government-related entity (GRE) in
the Republic of Costa Rica (foreign currency: BB/Stable/B; local
currency: BB+/Stable/B), with moderate importance to the
government, but its ratings are based on its stand-alone credit
profile rather than on expected extraordinary government
intervention. Consequently, we incorporate no notches of potential
government support into the rating.
The bank has
significant exposure in Central America, with almost half of its
assets and deposits located in Costa Rica and more than 25% in
Panama as of Sept. 30, 2009. On the other hand, management has
taken steps in order to diversify its investment portfolio in
countries with higher ratings. Although the bank has been working
on decreasing its main exposures, these exposures are concentrated
in large clients, exposing BICSA to large increases in
nonperforming assets when a client defaults, as happened in 2004
and 2005. Also, its main deposits are relatively concentrated, and
that exposes the bank to the risks that large withdrawals may be
made. To mitigate this, BICSA has issued bonds and commercial paper
in the Central American market. We think that the performance of
Costa Rican companies correlates highly with the sovereign
creditworthiness of Costa Rica, even when the loans are focused in
trade-finance. A more-diversified portfolio is a must for higher
ratings, but we do not expect the loan portfolio to diversify
significantly given the bank's background and business lines.
Recurrent
profitability has been relatively low at the bank, but is picking
up. As of Sept. 30, 2009, its net income of $7.4 million--a return
on assets (ROA) of close to 1.1%--is similar to that of other banks
with the same rating and has recovered from less than 1% during
2002-2008. We expect the bank's efficiency (58.9% as of Sept. 30,
2009) to remain close to 50% through 2010.
Since 2008, the bank
has not experienced any major credit events, and we do not expect
any such events in 2010. BICSA's refocusing of its strategy toward
more trade-finance and corporate lending, along with tighter
controls and a streamlining of its processes, could help it
maintain its ROA closer to 1.5%.
Enterprise risk
management is adequate, and we believe that BICSA has improved its
credit origination processes and operational risks. It has
strengthened its management, and we expect it to undergo structural
changes that will also build up its financial profile. Given the
portfolio's inherent risks, the bank needs to work constantly on
maintaining asset quality.
We think adequate
business prospects exist in the region where BICSA operates. The
short-term nature of the bank's loan portfolio also gives it more
flexibility than other banks to adapt to changing market
conditions. By refocusing on trade-finance and reorganizing its
loan origination group, BICSA has gone back to its core business,
while maintaining its loan portfolio risk at the same level.
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