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Fitch affirms Banistmo's national ratings; outlook negative

Fitch Ratings on May 30 affirmed Banistmo SA's long-term national rating at AAA(pan) with a negative outlook.

The lender's short-term national rating was affirmed at F1+(pan).

Fitch said the ratings reflect the support the Panama-based bank would receive from its parent, Bancolombia SA, if needed. The lender's negative outlook, however, is linked to the ratings outlook on Bancolombia and the relationship with its local peers.

Fitch considers Banistmo a key subsidiary that supports the parent company's expansion and diversification strategy in the region. Additionally, a potential default by Banistmo would carry a reputational risk for Bancolombia.

Banistmo is one of the largest banks in the country with broad network coverage in a highly competitive market, Fitch said, adding the bank is a "key player in the Panamanian banking industry because of its presence in almost every retail and wholesale lending segment."

The rating agency believes the bank's asset quality is in sync with its regional peers but is weak in comparison because it has the "highest delinquency indicators."

"The bank's loan portfolio is well diversified, however, exposure to potentially vulnerable segments such as consumer loans, some commercial businesses and some large corporate borrowers, has increased the risk of potential losses," Fitch added.

The bank's funding is considered a strength due to its "broad and fragmented" deposit base despite high competition.

Banistmo's capital ratios have improved since 2015 and Fitch's Core Capital should remain above 13% considering lower credit growth and no dividend payments. Fitch's Core Capital could deteriorate, however, in a stress scenario if the lender's loan portfolio were to deteriorate.

Fitch noted that Banistmo's profitability is "modest and lower" than that of its peers. "The net interest margin is higher than the industry average, however, the expense for loan loss provisions is high and has increased significantly," the rating agency said.