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Fitch: Loan deterioration at Peru's Agrobanco will not affect ratings

The continued deterioration in Banco Agropecuario's loan quality and its impact on the bank's capital adequacy metrics will unlikely affect its support-driven ratings, Fitch Ratings said Feb. 16.

According to Fitch, it does not have a viability rating assigned for Peru-based Agrobanco, as the bank is known, in view of its policy bank role, which is that the rating would reflect the weaknesses and deterioration of its intrinsic credit profile.

In addition, the Peruvian government affirmed its support to Agrobanco and is exploring options to increase the bank's capacity to meet its obligations and allow the entity to continue providing credit to small agricultural producers. The government has also been in direct discussions with the bank's creditors and is planning to recapitalize the bank with 450.0 million Peruvian soles this year.

Peru's financial regulator SBS earlier said Agrobanco lacked proper risk management control and disbursed credit too freely leading to the severe deterioration of its loan portfolio. The bank reported a provision-related net loss for 2017, resulting in a 62.5% decline in equity year over year, Fitch said.

The bank's capital and loan loss reserves totaled 739.0 million soles, compared to problem loans estimated at 800 million soles, or 57% of loans outstanding at year-end 2017. Regular recapitalizations and the full reinvestment of retained earnings since Agrobanco's inception mitigated the losses, Fitch said.

Agrobanco's support driven ratings are aligned with the sovereign, reflecting Fitch's view on the government's continuing likelihood of strong support.

Agrobanco is Peru's second-largest agricultural lender.

As of Feb. 15, US$1 was equivalent to 3.25 Peruvian soles.