Fitch Ratings on Oct. 16 upgraded the long-term issuer default ratings of Banco Agrícola SA and Banco Davivienda Salvadoreno SA to B from B-, following the upgrade of El Salvador's sovereign rating.
Fitch also raised the banks' viability rating to "b-" from "ccc." The banks' other ratings were affirmed, including their short-term issuer default ratings at B, long-term national rating at AAA(slv) and short-term national rating at F1+(slv). The outlook for the long-term ratings is stable.
The banks' issuer default ratings reflect the potential support from their respective shareholders, with Fitch believing the owners' commitment to their respective subsidiaries are sufficiently strong to allow them to be rated above the sovereign rating. However, the issuer default ratings remain constrained at El Salvador's B country ceiling.
Fitch's view also reflects the high reputational risks for the banks' parents in the event of default and that any required support would be manageable relative to the ability of the parents to provide it.
Meanwhile, the banks' viability ratings are highly influenced by El Salvador's operating environment, in which they are highly exposed due to their sizable local franchises.
Banco Agrícola's viability rating also moderately factors in its good asset quality, stable and diversified deposits, ample liquidity coverage and robust, although declining, capital position.
Meanwhile, Banco Davivienda Salvadoreno's viability rating is moderately influenced by its modest profitability, sound but decreasing capital position and adequate asset quality. The bank's funding profile is robust, which is also underpinned by a large and granular deposit base.
In addition, Fitch affirmed the AAA(slv) long- and F1+(slv) short-term national ratings of the banks' related entities, Inversiones Financieras Banco Agrícola SA and Inversiones Financieras Davivienda SA.