Fitch Affirms Global Bank's IDR at 'BBB-' Following Peer Review; Outlook Stable

Fitch Ratings has affirmed Global Bank Corporation's (GB) Long-Term Issuer Default Rating (IDR) at 'BBB-' and its long-term National rating at 'AA(pan)' following Fitch's peer review of Panama's largest banks. The Rating Outlook is Stable. A full list of rating actions follows the end of this release.

KEY RATING DRIVERS

IDR, VR, SUPPORT, SUPPORT RATING FLOOR AND NATIONAL RATINGS

GB's IDR and National ratings are driven by its intrinsic creditworthiness, as reflected in its Viability Rating (VR). GB's capitalization metrics and risk appetite highly influence its ratings. The bank's VR also considers its good asset quality consistent strategy and good profitability. GB's Support Rating and Support Rating Floor of '5' and 'NF', respectively, indicate that, although possible, external support cannot be relied upon, given the bank's limited systemic importance.

The bank's capitalization is weak compared with both domestic and international peers (emerging market universal banks with a VR in the 'bbb' category). As of June 2016, GB's FCC to Risk Weighted Assets ratio was 10.3%, remaining stable in the last three years. The bank has a good capacity to generate capital, though the credit and asset growth has surpassed internal capital generation in recent years. To counterbalance it, the bank has showed a sound ability to raise capital when needed and has issued hybrid capital instruments with good loss absorption capacity.

Sustained by the positive economic environment, GB's impaired loans remained low with past due loans greater than 90 days representing an average of 0.8% of total gross loans over the last three fiscal years, comparing favourably with the banking system. The bank's loan quality relies on sound underwriting standards, risk controls and good diversification by economic sectors. However, GB has characterized for an aggressive credit growth, with rates above the local industry and closest peers. Nonetheless, growth has diminished in 2016 (13%; 2015: 19%) and is expected to remain in the moderate level closer to 10% in the next years.

At 66%, client deposits as a proportion of total funding is low compared with local peers. In Fitch's view, the bank's deposit franchise is weak relative to its market share and pricing power on the asset side of its balance sheet. The bank's rapid growth in recent years was made possible through non retail sources. Among large Panamanian banks, GB has the highest level of wholesale funding participation in its structure. Even though the funding structure is less diversified with respect to its peers, Fitch believes the longer-term nature of wholesale funding reduces the bank's maturity mismatches.

The bank's profitability is good and has historically been above the local industry average. GB's profitability is underpinned by good operating efficiency and low credit costs, which counterbalance the bank's narrow net interest margin (NIM). The NIM has shown a tightening trend, in line with the systems evolution, reflecting the increased competition in the bank sector and higher funding costs due to the replacement of short-term financing with more diversified medium-term financing.

UNSECURED SENIOR NOTES

The senior unsecured notes are rated at the same level as the bank's IDR, in accordance with Fitch's criteria. The notes constitute direct, unconditional and unsecured senior obligations of the issuer. They rank pari passu among themselves and with all other unsubordinated and unsecured obligations of GB.

RATING SENSITIVITIES

Fitch believes positive rating action is limited over the ratings horizon. Positive rating actions could result from material improvement of the capital position and greater revenue diversification and further consolidation of the bank's franchise.

GB's ratings could be downgraded with an increase of the risk appetite as reflected by growth in riskier business segments and weaker loan quality. Also, the bank's ratings would be negatively affected by a sustained decline of the FCC ratio below 9.0%.

Fitch has affirmed GB's ratings as follows:

International ratings

--Long-Term IDR at 'BBB-'; Outlook Stable;

--Short-Term IDR at 'F3';

--Viability Rating at 'bbb-';

--Support Rating at '5';

--Support floor at 'NF';

--USD550 million senior unsecured notes due 2019 at 'BBB-';

--USD550 million senior unsecured notes due 2021 at 'BBB-'.

National ratings:

--Long-term national rating at 'AA(pan)', Outlook Stable;

--Short-term national rating at 'F1+(pan)';

--Long-term issuance program in El Salvador at 'AAA(slv)'.

Additional information is available on www.fitchratings.com

Summary of Financial Statement Adjustments: Pre-paid expenses were reclassified as other intangibles and deducted from Fitch Core Capital.

Applicable Criteria

Global Bank Rating Criteria (pub. 15 Jul 2016)

https://www.fitchratings.com/site/re/884135

Metodologia de Calificaciones Nacionales (pub. 13 Dec 2013)

https://www.fitchratings.com/site/re/727099

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1013723

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1013723

Endorsement Policy

https://www.fitchratings.com/regulatory

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