Fitch Affirms Banco de Credito e Inversiones' 'A-' IDR, Upgrades Support Rating & Floor

Fitch Ratings has affirmed the Chilean Banco de Credito e Inversiones' (BCI) Viability Rating (VR) and foreign and local currency long-term IDRs at 'a-' and 'A-', respectively. Additionally, Fitch has upgraded BCI's Support Rating to '1' and revised the Support Rating Floor to 'A-'. A complete list of rating actions is provided at the end of this release.

KEY RATING DRIVERS - VR, IDRs, National Ratings and Senior Debt

BCI's VR and IDRs reflect its strong domestic franchise, sound balance sheet and liquidity management, adequate capital base and credit quality, more diversified funding sources, and its stable profitability through the cycle.

The rating affirmation is also based on Fitch's opinion that the announced acquisition of City National Bank (CNB) is strategically positive for BCI and that it will not deteriorate the bank's overall financial strength. For more information refer to 'Fitch Affirms Chile's BCI's IDR at 'A-' on Announced Acquisition of City National Bank'. The acquisition is still pending regulatory approval in the United States and is expected to take place during second half-2014 (2H'14).

BCI has improved the monitoring of its individually assessed commercial loans, which, over the medium term, should ease the impact large borrowers' impaired loans have on operating income. In the past two fiscal years, BCI has had good control and monitoring of its portfolio quality. This is reflected in a moderate loan impairment charges to pre-impairment and operating profit ratio (30.45% in 2013). However, the ratio slowly deteriorated by May 2014 to 36.9% by voluntaries loans reserves charges. In Fitch's opinion this trend should moderate in 2H'14.

BCI's capital base has significantly improved since 2009, when the bank changed its dividend policy and decided to retain 70% of the bank's profits. This has benefited BCI's capital, and its Fitch core capital ratio has improved to 9.2% at May 31, 2014. Although BCI's Fitch core capital ratio still lags those of its international peers rated in the 'a-' category (median of 11% for banks with the same VR at Dec. 31, 2013), Fitch considers BCI's capital levels to be adequate to its current ratings level and expects that its sound and stable profitability will allow it to maintain them that way.

KEY RATING DRIVERS - Support Rating and Support Rating Floor

The upgrade on BCI's Support Rating and revision for the Support Rating Floor are based on Fitch view that BCI is a domestic systemically important financial institution (D-SIFI). Consequently, is a bank for which there is an extremely high probability of external support by the Chilean sovereign. The potential provider of support is very highly rated (foreign currency long-term IDR at 'A+') and, in Fitch opinion, has a very high propensity to support the bank.

KEY RATING DRIVERS - Subordinated Debt

Fitch rates the national subordinated debt of Chilean banks two notches below its national long-term issuer rating. The two notch difference considered the loss severity due to its subordinated nature (after default).

RATING SENSITIVITIES - IDRs, VR, National Ratings and Local Debt

The Rating Outlook for the long-term IDRs and national rating is Stable and there are base on BCI's Viability Rating. Downward pressure could result from a deterioration of its capital adequacy ratios, with a Fitch core capital ratio falling and remaining below 8.5%, either from a smaller than planned capital increase or from lower than expected profitability. BCI's VR could also be under pressure if operating return on assets falls and remains below 1.5% in the medium term, or if any unexpected risk related to the acquisition of CNB deteriorates BCI's profitability or capital base.

Upside potential currently appears limited. That said, an upgrade could take place upon continued growth coupled with a material improvement of its capital base, with greater levels of core capital, while maintaining its sound overall performance, low risk profile and ample liquidity.

The subordinated debt would typically remain two notches below the bank's national long term rating considering the loss severity due to its subordinated nature (after default).

Support Rating and Support Rating Floor

The Rating Outlook for the long-term IDRs and national rating is Stable and there are base on BCI's SFR of 'A-'. Changes in the bank's Support Rating and Support Rating Floor are contingent on sovereign rating actions for Chile, according to actual SFR for D-SIFI of the Chilean financial system.

Fitch has affirmed BCI's ratings as follows:

--Foreign and local currency long-term IDRs at 'A-'; Outlook Stable;

--Foreign and local currency short-term IDRs at 'F1';

--Viability Rating at 'a-';

--Long-term foreign currency senior unsecured bonds at 'A-';

--Long-term national rating at 'AA+(cl)';

--Short-term national rating at 'N1+(cl)';

--National long-term rating senior unsecured bonds at 'AA+(cl)';

--National long-term rating on its subordinated bonds at 'AA-(cl)';

--National equity rating at 'Primera Clase Nivel 1'.

Fitch has upgraded BCI's ratings as follows

--Support Rating to '1' from '2'.

Fitch has revised BCI's ratings as follows

--Support Rating Floor revised to 'A-'from 'BBB+';

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=843762

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