Fitch Ratings on Sept. 27 upgraded state-run Peruvian bank Banco Agropecuario's short-term foreign currency issuer default rating to F1 from F2.
The upgrade follows a similar action on Peru's sovereign short-term issuer default rating, which was triggered by an update to Fitch's rating criteria.
The bank's long-term foreign currency issuer default rating, meanwhile, was affirmed at BBB+, with a stable outlook.
The ratings on Banco Agropecuario, or Agrobanco, reflect the likelihood of support from Peru's government should it be required. Despite its small share of the local financial system, Agrobanco "is an integral part of the government's agricultural development strategy" and "is one of the most important sources of financing for the agricultural sector," Fitch said.
The bank has been suffering large operating losses in recent quarters, driven by high impairment charges and a decline in interest income. Its loan quality indicators have deteriorated significantly since 2016, with its 90-day nonperforming loan ratio hitting 78.7% as of June from 69.58% at end-2018 and 33.19% at the close of 2017.
However, Agrobanco has made some moves to cut down on financial and overhead expenses, including the reduction of headcount and offices, Fitch noted. The Peruvian government has also taken a range of measures to support the bank, including capital injections and the prepayment of outstanding obligations.
Earlier in 2019, Agriculture Minister Gustavo Mostajo said the troubled bank should return to profitability this year after Congress scrapped a proposal to transform the lender into a government fund.
