Fitch Affirms Ratings of Four Private Sector Venezuelan Banks

Fitch Ratings has affirmed the ratings of four private sector Venezuelan banks, including:

--Banesco, Banco Universal, CA (BBU);

--Banco Provincial, S.A., Banco Universal (Provincial);

--Mercantil, C.A. Banco Universal (Mercantil);

--Banco del Caribe, C.A. Banco Universal (Bancaribe).

A full list of rating actions follows at the end of this press release.

The banks included in this peer review have assets between USD10 billion and USD33 billion with operations primarily in Venezuela. All of these banks' Viability Ratings (VRs), or standalone intrinsic financial strengths, drive their IDRs and do not take into account either institutional or state support.

Solid asset quality and profitability (not adjusted for inflation) indicators, in part due to high nominal credit growth support their VRs. While liquidity profiles are sufficient for the local market, a high proportion of the banks' liquid holdings are in Venezuelan public sector instruments. Furthermore, all of these banks have a large negative mismatch between short-term assets and liabilities as is common to Venezuelan banks more generally. However, this position is manageable under Venezuela's current scheme of foreign exchange controls.

Fitch expects some deterioration in these banks' financial profiles during 2014 due to the Venezuelan operating environment's inherent risks as a result of severe macroeconomic imbalances, as well as a seasoning of credit portfolios. However, absent a material increase of government intervention in the banking sector or a severe macroeconomic adjustment, financial metrics should remain well within the norm of similarly rated peers (emerging market commercial/universal banks with a 'b' category VR).

The rating actions below follow a periodic review of these four banks. Fitch will publish the main findings of this review in a report 'Peer Review: Private Sector Venezuelan Banks', which will be available at www.fitchratings.com. Fitch concludes that the largest private sector Venezuelan banks will remain more resilient than the rest of the system in the event of stress.

KEY RATING DRIVERS - IDRS, VRS AND NATIONAL RATINGS

BBU

BBU's ratings balance its solid profitability and asset quality indicators, as well as its adequate liquidity against its weaker capitalization ratios relative to domestic and international peers. The ratings also take into account the government's persistent intervention in the banking sector and Venezuela's inherent economic and operational volatility. BBU is the main subsidiary of Banesco Holding, S.A.

PROVINCIAL

Provincial's ratings reflect its strong franchise and financial profile compared with both domestic and international peers. The ratings also incorporate the bank's conservative risk management and operational support from Spain's Banco Bilbao Vizcaya Argentaria (BBVA). Despite the bank's robust profitability, asset quality and capital position, the ratings are constrained by the sovereign due to the negative effects of government control over the financial sector and the broader economy (reflected in Venezuela's 'B+'/Negative Outlook). Provincial's majority shareholder is BBVA, which has a 55% stake in the bank.

MERCANTIL

Mercantil's ratings reflect its strong performance, manageable liquidity risk and resilient credit risk profile. The strength of its balance sheet, management's experience in dealing with the inherently volatile operating environment in Venezuela and its ample market share and strong franchise allow the bank to maintain a relatively stable deposit base.

The ratings also take into account the bank's healthy asset quality and adequate capitalization, both of them in line with other domestic (universal) banks and comparing favorably to international peers. On the other hand, Mercantil's ratings are also constrained by the sovereign. Mercantil is the largest subsidiary of Mercantil Servicios Financieros.

CARIBE

Bancaribe's ratings are consequence of its resilient performance, stable asset quality and adequate liquidity risk. It also incorporates a strengthening of capital ratios in 2013, after being pressured by high nominal asset growth in recent years. The ratings also take into account the government's persistent intervention in the banking sector and Venezuela's inherent economic and operational volatility. Scotiabank has a minority stake of 27% in Bancaribe.

RATING SENSITIVITIES - IDRS, VRS AND NATIONAL RATINGS

Government intervention that pressures financial performance of these banks could negatively affect the banks' IDRs, VRs and National ratings. A sustained deterioration in profitability or asset quality that pressures capitalization ratios could also be negative for their ratings.

Additionally, a downgrade of the sovereign's IDRs would result in a similar action on the ratings of Provincial and Mercantil, which are currently capped at the sovereign. There is no upside potential to any of the banks' international ratings in the near term as the sovereign currently has a Negative Rating Outlook.

KEY RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR

The banks' Support Rating (SR) of '5' and Support Rating Floor (SRF) of 'NF' reflect Fitch's expectation of no support. Despite these banks' systemic importance, support cannot be relied upon given Venezuela's speculative grade rating and lack of a consistent policy on bank support. Government interference in the banking system could also negatively influence shareholder support if these banks were to require financial assistance.

Venezuela's propensity or ability of to provide timely support to these banks is not likely to change given the sovereign's low speculative grade ratings. As such, the SR and SRF have no upgrade potential, particularly as the sovereign has a Negative Outlook.

Fitch has affirmed the following ratings:

BBU

--Long-term foreign and local currency IDRs at 'B'; Outlook Stable;

--Short-term foreign and local currency ratings at 'B';

--Viability at 'b';

--Support at 5;

--Support Floor at NF;

--Long-term national-scale rating at 'A+(ven)';

--Short-term national-scale rating at 'F1(ven)'.

Provincial

--Long-term foreign and local currency IDRs at 'B+'; Outlook Negative;

--Short-term foreign and local currency ratings at 'B';

--Viability at 'b+';

--Support at 5;

--Support Floor at NF;

--Long-term national-scale rating at 'AA+(ven)';

--Short-term national-scale rating at 'F1+(ven)'.

Mercantil

--Long-term foreign and local currency IDRs at 'B+'; Outlook Negative;

--Short-term foreign and local currency ratings at 'B';

--Viability at 'b+';

--Support at 5;

--Support Floor at NF;

--Long-term national-scale rating at 'AA+(ven)';

--Short-term national-scale rating at 'F1+(ven)'.

Caribe

--Long-term foreign and local currency IDRs at 'B'; Outlook Stable;

--Short-term foreign and local currency ratings at 'B';

--Viability at 'b';

--Support at 5;

--Support Floor at NF;

--Long-term national-scale rating at 'A+(ven)';

--Short-term national-scale rating at 'F1(ven)'.

Additional information is available on www.fitchratings.com

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);

--'National Scale Rating Criteria' (Oct. 30, 2013);

--'2014 Outlook: Andean Banks' (Dec. 16, 2013).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

National Scale Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082

2014 Outlook. Andean Banks (Colombia, Ecuador, Peru and Venezuela)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726275

Additional Disclosure

Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=816994

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