Banco Industrial Outlook Seen Worsening

Fitch has cut to stable from positive the outlook on the BB ratings of Banco Industrial amid a worsening environment in capital markets that complicates capital enhancement alternatives. Guatemala’s biggest bank had been trying to do an IPO earlier this year, but opted instead for a $35m 2068 Tier-1 hybrid paying 9% for 10 years and Libor plus 600bp thereafter. The April offering through Credit Suisse was placed only with Guatemalan investors and fell well short of a $100 million target size. The prior positive outlook from Fitch reflected perception that capital adequacy would improve following certain strategies that the management has pursued. “Weakening economic prospects are likely to impact Industrial’s impairment loan ratio, its provisions and overall performance, a confluence of factors that is consistent with Industrial’s current ratings, hence Fitch’s outlook revision to stable,” says the agency. It notes that Industrial maintains a robust franchise in Guatemala, low level of loan delinquency, improving efficiency and profitability, and adequate funding and liquidity. However, it also has a tight capital position following ample organic and acquisition-driven growth over the past two years, limited and declining loan loss reserves and modest revenue diversification. If Industrial hits difficulties, Fitch believes the government of Guatemala would have a vested interest in supporting it, given ample deposit market share.