Fitch Ratings has assigned an expected rating of ‘BBB (EXP)’ to Banco Nacional de Panama’s (Banconal) proposed senior unsecured notes to be issued in the amount up to USD 1 billion at a fixed-rate interest rate to be set at the time of the issuance. The tenor is likely to be 10 years, and a maturity date is yet to be determined.

The proceeds will be used for general corporate purposes. The final rating is contingent upon receipt of final documents conforming to information already received.

KEY RATING DRIVERS

The rating of the proposed senior debt is at the same level as Banco Nacional’s Long-Term Issuer Default Ratings (IDRs; BBB/Negative). Fitch views the default risk of the senior notes and the bank as equivalent and believes the senior obligations have average recovery prospects. Banconal’s IDR and senior debt ratings are aligned with those of its owner, the Republic of Panama (BBB/Negative), reflecting a general subsidiary state guarantee for all of its liabilities established under Banconal’s Organic Law (Article 3). The subsidiary guarantee enforceable under Panamanian law is not a direct guarantee of the notes, which are governed by the law of the State of New York.

Fitch’s view on the propensity of support is reinforced by Banconal’s systemic importance and liability structure as funds from the government and all public entities are kept at the bank. Banconal also provides key services such the check-clearing and compensation process and could be considered as a potential source of liquidity for a financial system that lacks a central bank.

On April 17, 2020, Fitch affirmed Banconal’s ratings. As of June 2020, deferrals and restructures related to the coronavirus pandemic were 11% of gross loans as Banconal has low exposure to more sensitive credit segments such as credit cards and commercial activities (less than 4%). Consumer loans, which are significant (54%), have been more resilient to unemployment due to its focus on payroll deductible loans to government employees. Banconal has maintained a strong funding and liquidity profile, and deposits have continued to grow amid the pandemic (17% between December 2019 and June 2020) including funds from the sovereign debt issuance. Nevertheless, uncertainties surrounding the full impact of the coronavirus across the banking system remain high as some lockdown measures remain in place.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

The rating of the proposed senior notes would mirror any changes in the bank’s IDR, which has limited upside potential given that the sovereign rating has a Negative Outlook. While not likely in the current operating environment, Banconal’s IDR and issue ratings would be upgraded in the event of an upgrade of the sovereign’s IDR.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

The bank’s IDR and issue rating would be downgraded following a downgrade on the sovereign.

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