Santiago, Chile - 05 Agosto de 2003
Feller Rate has ratified the credit ratings of Banco de Crédito e Inversiones (Bci) and Empresas Juan Yarur (see list). The prospects for both entities were changed from "Stable" to "Positive" reflecting the strengthening of the Bank's financial profile and market positioning.
The rating given Bci's paper is a result of its sustained growth in market share accompanied by improvements in operating efficiency and a stable loan portfolio, as well as returns on assets and equity that are above the sector range. The rating is based also on its strong penetration of the middle corporate market sectors, its leadership in sight deposits and cash management and the stability of its management team.
The Bank concentrates on business with medium and small companies, and individuals in the C1 and C2 segments. However, growth in its lending since late 2000 has been focused principally on corporations and large companies. The Bank has capitalized on the mergers of competitor banks, increasing its market shares in loans and deposits by about three percentage points. On the other hand, its gross margins declined due to its more active operations in segments that demand lower spreads and to lower interest rates.
Asset quality was affected by the economic adjustment of 1999 which mainly influenced the middle segments. However, the Bank has managed to reduce and stabilize its credit exposure, with provisions of around 15% of its gross earnings and doubtful loans representing 1.4% of total assets.
In terms of efficiency, Bci's objective is to have the lowest operating costs in relation to revenues of among the largest banks in Chile. It has therefore made changes in its operating processes, migrating to remote channels and rationalizing costs. This has been reflected in a reduction in expenses which fully covered the fall in margins and a Operating cost/Gross operating income ratio of below 50%.
The high returns on equity and capitalization of around 50% of net income have increased its capital base and sustained the growth in assets without resort to fresh capital from its shareholders. The Bank has therefore achieved its objective of maintaining an Effective equity/Risk-weighted assets ratio above 10%.
The principal investments of Empresas Juan Yarur are in the regulated industries of banking and insurance. Bci is its main asset, representing 90% of its investments and practically all its revenues. This brings with it a high cash-flow dependence on the Bank's capacity to pay dividends. Over the medium term, its sources will tend to become more diversified, with the insurance companies contributing around 15% of its cash flows. Its financial profile is characterized by a debt ration fluctuating around 0.3:1 and a financial expense coverage ratio of more than 5.0 times. Its return on equity is more than 18% which is higher than those of other financial holding companies.
POSITIVE PROSPECTS
The change in rating prospects from "Stable" to "Positive" follows from the gradual strengthening of Bci's market positioning, with gains in revenue diversification and market share accompanied by strong operating generation and an improvement in asset quality.
