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Fitch affirms Banco de Costa Rica's IDR at 'BB+'

Fitch Ratings has affirmed Banco de Costa Rica's (BCR) Issuer Default Ratings (IDRs) at 'BB+' and Viability Rating (VR) at 'bb+'.

BCR's IDRs are driven by the explicit sovereign guarantees for all its liabilities. As stated in the Banking Law (Ley Organica del Sistema Bancario Nacional), all public banks have the guarantee and full collaboration of the state, which allows the bank's IDRs to be aligned with Costa Rica's sovereign ratings.

In turn, BCR's VR considers the bank's established track record of self-sustained profitability, strong franchise, good asset quality, as well as the bank's challenged efficiency ratios.

The long-term rating's Outlook remains Stable. Changes in the bank's IDRs are contingent on sovereign rating actions for Costa Rica. Given BCR's current financial profile, the potential for an upgrade of the bank's VR over the medium term is limited. Though not Fitch's base case scenario, a material deterioration in efficiency or asset quality that compromise the bank's profitability or capital position could trigger a downgrade in BCR's VR.

Similar to other state-owned institutions, BCR's operating expenses are high and present limited flexibility, given the bank's extensive branch network and high personnel expenses. The current administration has included efficiency among its key strategic objectives, although material advances in this regard could only be expected over the medium to long term. However, profits have been able to sustain asset growth and maintain adequate capital ratios. In addition, in the event of an increase in expenses or compulsory contributions, Fitch would expect asset growth to slow down or capital ratios to decrease slightly.
 
BCR's growth toward a more balanced portfolio has improved loan diversification while keeping asset quality ratios under control. After the impact of the financial crisis on credit quality, delinquency ratios have been controlled and the bank's reserves coverage has recovered, though it is still bellow pre-crisis levels. Fitch expects BCR's non-performing loans ratios to remain stable, given the bank's increased participation in retail segments.

BCR has a very strong local franchise. The customer's perception of the sovereign guarantee, combined with BCR's extensive branch network and solid deposit base, place it as one of the strongest competitors in the Costa Rican banking system. BCR is the second largest bank, with a market share of 28.8% of total assets. BCR has grown toward a universal bank by increasing its participation in consumer financing along with its traditional corporate orientation. The bank complements its services with five subsidiaries: four wholly owned subsidiaries in regulated non-credit activities in Costa Rica and a 51% participation in the Panamanian general licensed bank Banco Internacional de Costa Rica (BICSA; rated 'BB+' with Stable Outlook by Fitch).

Fitch has affirmed BCR's ratings as follows:

International ratings
--Long-term IDR at 'BB+'; Outlook Stable;
--Short-term IDR at 'B';
--Long-term local currency IDR at 'BB+'; Outlook Stable;
--Short-term local currency IDR at 'B';
--Viability Rating at 'bb+';
--Support Rating at '3';
--Support Rating Floor at 'BB+'.

National ratings
--Long-term national rating at 'AA+(cri)'; Outlook Stable;
--Short-term national rating at 'F1+(cri)';
--Long-term senior unsecured bonds at 'AA+(cri)';
--Commercial paper at 'F1+(cri)'.

Fitch has assigned the following new ratings:

--Programa De Emisiones De Bonos Estandarizados Del Banco De Costa Rica 2012:
long-term senior unsecured debt programo for USD150 million at 'AA+(cri)';

--Programa De Emisiones De Papel Comercial Del Banco De Costa Rica 2012:
Commercial paper issuance program for CRC15.000 million at 'F1+(cri)'.

Additional information is available on 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 16, 2011);
--'National Rating Criteria' (Jan. 19, 2011).

Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
National Ratings Criteria