NEW YORK--(BUSINESS WIRE)--Today Fitch Ratings has affirmed HSBC Bank Panama (HBPA) and its subsidiary Primer Banco del Istmo's (PBI) ratings as follows: HSBC Bank Panama: --Foreign Currency Long-term Issuer Default Rating (IDR) at 'BBB+'; --Foreign Currency Short-term IDR at 'F2'; --Individual Rating at 'C/D'; --Support Rating at '2'. The Rating Outlook is Positive. Primer Banco del Istmo: --Foreign Currency Long-term IDR at 'BBB+'; --Foreign Currency Short-term IDR at 'F2'; --Individual Rating at 'C/D'; --Support Rating at '2'. The Rating Outlook is Positive. HBPA and PBI's IDRs reflect the support from its parent (HSBC, rated 'AA' by Fitch Ratings) and are constrained by Panama's country ceiling rating. The individual ratings reflect HBPA and PBI's strong franchise, market share and improving revenue diversification; they also factor in the challenges of their merger and the weakening economic scenario. (more)
In Fitch's opinion, considering HBPA's (and PBI's) size, importance and key role in HSBC's strategy in the region, support from its parent should be forthcoming, if needed. An upgrade in Panama's country ceiling rating (reflecting a strong economy) would allow HBPA's and its subsidiary's IDRs to be upgraded. A disruptive integration of PBI, declining asset quality or weaker capitalization could pressure individual ratings.
HBPA's performance in 2008 is driven by stable margins and increasing non-interest revenues that offset modest loan portfolio growth (+2.2% for the year to date at August 2008). Margins are somewhat underpinned by decreasing funding cost while growing fees and commissions supply about 25% of operating revenues. Operating costs have increased, reflecting the on-going integration effort that involves significant investments in premises, training and an IT overhaul. Provisions have gradually returned to normal levels hence resulting in higher efficiency and improved profitability.
The loan portfolio is widely diversified and little concentrated while asset quality and reserve coverage improved within HSBC's stricter credit policies. The investment portfolio is smaller, less risky and a substantial liquidity cushion is in place. Deposits, which are broad-based and little concentrated, increased in line with assets and funding costs eased as institutional funding declined. Capital was strengthened by fresh capital injections (about $156 million) and retained earnings (over $160 million), hence BIS capital ratios attain 10.9% at August 2008 (11.4% in 2007, 9.4% a year earlier).
Going forward, moderate loan growth should be driven by corporate lending and later on by retail lending; margins should remain under pressure, but funding costs are likely to stabilize/decline. Operating costs should start declining in 2Q09, after the integration is completed while credit cost should stabilize in line with asset quality. Efficiency and profitability should improve only by 2Q09 while capital ratios should remain fairly stable. The merger has been delayed by the IT overhaul; however, these glitches do not change Fitch's belief that the completed merger will result in a very sound, efficient and competitive regional player as originally planned.
HBPA is 100% owned by HSBC; its operations are highly integrated within HSBC's regional franchise where it is considered a key subsidiary. A universal bank active in consumer, commercial and corporate lending, HBPA holds 21% of the system's assets at September 2008; it merged with Grupo Banistmo (PBI's parent) in July 2007 creating Panama's largest bank and a major regional player operating in Central America and Colombia.
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