Fitch Affirms Multibank Inc.'s Long-Term IDR at 'BBB-' Outlook Stable

Panama Business. Fitch Affirms Multibank Inc.'s Long-Term IDR at 'BBB-' Outlook Stable. Fitch Ratings has affirmed Multibank Inc.'s (MB) Long-term Issuer Default Rating (IDR) at 'BBB-' and Viability Rating (VR) at 'bbb-' following Fitch's peer review of Panama's mid-sized banks. Fitch has also affirmed MB's national long-term rating at 'AA'(pan). The Rating Outlook on MB's IDR and National long-term rating remains Stable. A full list of rating actions follows at the end of this rating action commentary.

MB's VR drives its Long-term IDR and National scale ratings and are highly influenced by MB's moderate risk appetite and stable capital position. The ratings also factor in the favorable operating environment and MB's strengthened franchise which tempers the bank's weakening profitability trend, which can be seen across the banking system

The bank has successfully executed a long-term strategy, adopted since 2005, to expand its retail services, diversify its revenue generation and become a universal bank with regional reach. In addition, the bank's international expansion has been well executed, with its Colombian subsidiary acquiring a banking license earlier this year. Positive income stream from this subsidiary will come in the medium term, according to Fitch.

The bank's capital position at December 2014 remained stable compared to the prior year. The bank's capital position benefits from periodic recapitalizations, including a $40 million issuance of common shares in 2013. While growth has slowed, the bank continues to be in an expansion phase, with growth rates in excess of its internal capital generation.

Subsequent to a significant unrealized securities revaluation loss in 2013, MB has acted to reposition its portfolio and hedge its market risk, particularly on its longest duration maturities. In 2014, MB's securities portfolio recorded marginal gains, but was offset by a foreign exchange revaluation loss related primarily to its equity investment in its Colombian subsidiary. MB still shows relevant exposure to market risk, especially in light of a possible increase of interest rates. Further improvements in this regard will come over time as the investment portfolio is gradually repositioned.

MB's asset quality has been robust. Loans past due by 90 days decreased to 0.8% at December 2014, comparing favourably with the Panamanian national banking sector average of 1.1%. The bank's reserves represent 1.4% of gross loans, not including reserves in the capital account, and cover impaired loans by 174% at December 2014. MB also has a diversified portfolio with minor levels of concentration and related party lending.


The bank's profitability ratios are moderate and declining. Solid asset quality and controlled operating costs have been offset by pressured margins. The bank's ROAA has declined to 1.28% as of December 2014 from 1.51% in 2011. Fitch expects that margins may further deteriorate across the industry due to high levels of competition and market penetration.