July 4th, 2013 (InsideCostaRica.com) Moody’s Investors Service assigned a standalone bank financial strength rating (BFSR) of D+ to Banco de Costa Rica (BCR) on Tuesday.
Moody’s said that the BCR’s rating – which is 100% owned by the Costa Rican government – reflect the bank’s dominant franchise in both corporate and retail banking, its well managed and stable asset quality, as well as its superior local funding access aided by the government guarantee on its deposit obligations.
“These characteristics are also supported by BCR’s solid tangible capitalization and proactive management that is highly focused on improving the bank’s internal controls, risk management, and corporate governance,” Moody’s said in its report.
“Key constraints to the bank’s standalone rating are the limitations to its profitability as a result of relatively high operating leverage and a relatively high corporate tax rate of 30% coupled with additional mandatory transfers to support government-sponsored programs in line with its public sector mandate. Nevertheless, the bank’s returns have improved during the past two years owing to good control of credit and operating costs,” the report said.
Moody’s noted the risk that the government could use BCR to lend to less creditworthy segments of the economy for the purpose of financial inclusion or to the public sector for its own financial needs, particularly as the bank has relatively high lending limits for public sector entities. To date, however, the bank has limited its public sector lending exposure to around 30% of Tier 1 capital, much closer to the 20% related party lending limit for private sector banks. Given its close financial and business linkages with the government, including large securities holdings, BCR’s standalone ratings will be limited by the government’s bond rating, said Moody’s.
Other key risks to BCR’s standalone creditworthiness are its large, though diminishing, single borrower concentrations that are commensurate with a predominantly commercial loan book as well as exposure to additional credit and foreign exchange risk related to foreign currency loans made to local currency earners.
Banco de Costa Rica was established in 1877 by the Costa Rican government and is the oldest financial institution in the country. It is the second largest bank, after Banco Nacional de Costa Rica, with a market share of 20% in loans and 22% in deposits. BCR is also a leading securities and insurance broker and pension and mutual fund manager through its 100%-owned subsidiaries BCR Valores Puesto de Bolsa S.A., BCR Corredora de Seguros S.A, BCR Sociedad Administradora de Fondos de Inversión S.A., and BCR Operadora de Pensiones S.A. BCR reported total consolidated assets of US$7.5 billion (CRC 3.8 trillion), equity of $730 million (CRC 372 billion) and net income of $63 million (CRC 31.9 billion), as of December 31, 2012.