Fitch Downgrades Ratings of Bancolombia and Banco de Bogotá
Fitch Ratings put Bancolombia and Banco de Bogotá on negative watch in April and has followed up with an official downgrade to the international ratings for both major banks. Fitch has dropped the viability rating (VR) to bbb and the issuer default ratings (IDRs) to BBB for each bank, as well as those of some foreign subsidiaries.
Bancolombia’s downgrade was due to a deeper analysis from the ratings agency into the bank’s plans to improve on the weak capital results shown during the last few quarters. This is what prompted Fitch to originally put Bancolombia on negative watch, and it is not satisfied by the stated capitalization plan.
Photo: A Banco de Bogotá office building in the capital’s Chapinero neighborhood. Credit: Jared Wade
“Bancolombia’s slower growth and sustained internal capital generation could aid in rebuilding its capital ratios over the next year,” said Fitch in a statement. “However, the agency does not expect capitalization levels to return to those reported in 2014 in this period, which is the main drive of the downgrade.”
The plight of Banco de Bogotá, which is controlled by the holding company Grupo Aval, is similar, as both are operating in a general economic environment in Colombia that remains disconcerting to Fitch. The bank has also been experiencing capital challenges of late and recently announced a plan to try to reverse course.
In June 2016, Grupo Aval announced a merger between Leasing Bogota Panama and Banco de Bogotá, which is currently waiting for approval by Colombia’s regulator, that is expected to lower volatility and yield tax savings. It is also has made some beneficial accounting changes, specifically regarding how its stake in its Corficolombiana subsidiary will affect the capitalization on its books.
“[Banco de] Bogotá’s ratings are highly influenced by its tight capitalization metrics, which are no longer consistent with its previous ratings, especially in view of a less benign operating environment in the foreseeable future,” said Fitch in a statement.
It did add, however, that the recapitalization plans taken by Banco de Bogotá and Grupo Aval do look promising and “will lead to a recovery of [Banco de] Bogota’s capitalization ratios to a level more commensurate with similarly rated international peers in the mid-term.”
The downgrades for Colombia’s largest (Bancolombia) and oldest (Banco de Bogotá) banks come just weeks after a series of negative ratings actions throughout the nation. The country’s sovereign rating was first hit in late July, with Colombia’s long-term local currency (LTLC) issuer default rating (IDR) and its long-term senior unsecured local currency bonds both falling to BBB from BBB+. State-controlled oil giant Ecopetrol was put on negative watch soon after. And then it was Bogotá and Medellín’s turn. Each city was downgraded in early August.
Fitch Ratings’ full ratings actions taken against Bancolombia, Banco de Bogotá, and Grup Aval are included here:
Bancolombia
- Long-Term Foreign Currency IDR downgraded to BBB from ‘BBB+, Outlook Negative
- Short-Term Foreign Currency IDR affirmed at F2 (removed from Rating Watch Negative)
- Long-Term Local Currency IDR downgraded to BBB from BBB+, Outlook Negative
- Short-Term Local Currency IDR affirmed at F2 (removed from Rating Watch Negative)
- Viability Rating downgraded to bbb from bbb+ (removed from Rating Watch Negative)
- Support Rating affirmed at 2
- Support Rating Floor affirmed at BBB-
- Senior unsecured debt downgraded to BBB from BBB+ (removed from Rating Watch Negative)
- Subordinated debt downgraded to BBB- from BBB (removed from Rating Watch Negative)
- National Long-Term Rating affirmed at AAA (col), Outlook Stable
- National Short-Term Rating affirmed at F1+
- Senior unsecured debt national rating affirmed at AAA (col)
- Subordinated debt national rating affirmed at AA+ (col)
Banco de Bogota
- Long-Term Foreign Currency IDR downgraded to BBB from BBB+, Outlook Negative
- Short-term foreign currency IDR affirmed at F2 (removed Rating Watch Negative)
- Long-term local currency IDR downgraded to BBB from BBB+, Outlook Negative
- Short-term local currency IDR affirmed at F2 (removed Rating Watch Negative)
- Viability rating downgraded to bbb from bbb+ (removed Rating Watch Negative)
- Senior unsecured debt rating downgraded to BBB from ‘BBB+ (removed Rating Watch Negative)
- Subordinated debt rating downgraded to BBB- from BBB (removed Rating Watch Negative)
- Support rating affirmed at 2
- Support rating floor affirmed at BBB-
Grupo Aval
- Long-term Foreign Currency IDR affirmed at BBB, Outlook Negative
- Short-Term Foreign Currency IDR affirmed at F3
- Long-Term Local Currency IDR affirmed at BBB, Outlook Negative
- Short-Term Local Currency IDR affirmed at F3
- Support rating affirmed at 5
- Support rating floor affirmed at NF