BUSINESS:
Fitch Rates Banco Internacional de Costa Rica (BICSA)
Fitch has assigned the following ratings to Banco Internacional de Costa Rica (BICSA) with a Stable outlook:

Banco Internacional de Costa Rica (BICSA):

--Long-term foreign currency Issuer Default Rating (IDR) 'BB';

--Short-term foreign currency rating 'B';

--Individual 'C/D';

--Support '3';

--National-scale long-term rating 'A+(pan)';

--National-scale short-term rating 'F1(pan)'.

BICSA's individual rating and IDRs are underpinned by recent improvements in profitability, capitalization, and asset quality, following a corporate reorganization that resulted in a dramatic reduction in the bank's cost base.

These ratings also consider increasing competitive pressures and higher than average risk concentrations, given the bank's relatively small size and its focus on trade finance and corporate banking.

In turn, the Support rating at '3' reflects Fitch's belief that support to BICSA, if required, could be provided by its main shareholder, Banco de Costa Rica (BCR).

However, BCR's ability to provide full and timely support could be limited by legal or political issues. The explicit sovereign guarantee that Costa Rican state-owned banks have is not available to BICSA. In November 2005, Costa Rica's state-owned BCR acquired from its larger peer Banco Nacional de Costa Rica (BNCR; also owned by the Costa Rican government) a 31% stake in BICSA, which increased its ownership to 51% from 20%.

In Fitch's view, BICSA's further integration with BCR will continue to benefit its overall financial condition and risk management.

The bank's low and well-contained cost base is a major strength to further improve profitability, despite ample competitive pressures in BICSA's main markets.

The recent enhancement of BICSA's risk management is also weighted on its ratings, as some problem loans affected asset quality in the past. Given the concentrated loan portfolio inherent to its business mix, hefty provisions and charge-offs to absorb these losses affected BICSA's financial performance in previous years. Fitch considers BICSA's liquidity as somewhat modest, as the bank's reliance on wholesale funding sources and creditor concentrations is relatively high. Moreover, the proportion of liquid assets has gradually declined in line with loan growth, though it still accounts for an adequate 22% of total assets.

BICSA's capital position is sound, but further improvements in the bank's internal capital generation are important to sustain loan growth in the medium term.

BICSA was established in 1976 to serve as a financing vehicle for global trade of Central American corporations, in view of the increasing economic integration of the region.

BICSA gained a robust position in this segment in the 1980s, but the return of major global banks to Central America in the 1990s gradually pressured the bank's competitive position, and loans declined for a number of years until this trend was reversed in 2004.

BICSA has an office with an international banking license in Miami that accounts for 30% of total loans and half of the correspondent banking business. It also has representative offices in Guatemala (since 1994), Nicaragua (2004) and El Salvador (2005), which will likely be converted into operating subsidiaries in the medium term, aiming at expanding local funding more balanced with asset growth.

The customer service office in Costa Rica remains a major business generator, while BICSA has only one subsidiary, the wholly owned local small-sized leasing company 'Arrendadora Internacional'. BICSA's core businesses are corporate banking (77% of total loans at end-June 2006) and correspondent services (19%), while major markets are Costa Rica (47% of loans), Panama (29%) and Guatemala (11%).