/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/220831.mbx T R O U B L E D C O M P A N Y R E P O R T E R L A T I N A M E R I C A Wednesday, August 31, 2022, Vol. 23, No. 168 Headlines A R G E N T I N A ARGENTINA: Economy Grew 6.3% in First Half of 2022, INDEC Says B R A Z I L BANCO COOPERATIVO SICREDI: Moody's Affirms Ba2 CFR, Outlook Stable BRAZIL: Foreign Direct Investment Soars 52%, Central Bank Says ULTRAPAR PARTICIPACOES: Moody's Affirms Ba1 CFR, Outlook Now Stable C O S T A R I C A BANCO DE COSTA RICA: Fitch Affirms 'B' LT IDR, Outlook Stable BANCO NACIONAL DE COSTA RICA: Fitch Affirms 'B' LongTerm IDRs BANCO POPULAR Y DE DESARROLLO: Fitch Affirms 'B' IDRs C U B A [*] Cubans Flock to Buy Coveted Dollars as New Policy Takes Effect J A M A I C A DIGICEL GROUP: Appoints John Townsend as Chief Financial Officer JAMAICA: Jamaican Dollar Depreciates at Slower Rate v. USD V E N E Z U E L A VENEZUELA: Bolivar's Crash Breaks Rare Stretch of Stability VENEZUELA: Oil Output Now Well Short of Maduro's Lofty 2022 Target - - - - - ================= A R G E N T I N A ================= ARGENTINA: Economy Grew 6.3% in First Half of 2022, INDEC Says -------------------------------------------------------------- Buenos Aires Times reports that Argentina's economy unexpectedly expanded in June before a political crisis in July sent prices soaring to a 30-year high. Economic activity increased 6.4 percent year-on-year in June, the INDEC national statistics bureau said, according to Buenos Aires Times. The figure, produced by the bureau's estimate of activity, means that Argentina’s economy grew 6.3 percent in the first half of 2022 when compared to the previous year, the report notes. Compared to the previous month however, the economy grew 1.1 percent in the indicator, which is seasonally adjusted, well above economists' expectations of a 0.2 percent decline, the report relays. In June, economic activity was driven by the wholesale trade, retail and repairs (+ 8.4 percent compared with the same month in 2021), manufacturing (+ 6.2 percent), and transport and communications (+ 10.8 percent) sectors, which together contributed three percentage points to the increase in the total index, INDEC noted, the report notes. The fastest-growing sectors were hotels and restaurants (+ 39.2 percent compared with June 2021) and mining and quarrying (+ 14.2 percent), the report discloses. While the economy was resilient in the first half of the year, analysts in the Central Bank's monthly survey now forecast that Argentina will enter a brief recession with contractions in the third and fourth quarters, the report says. Annual growth will be around 3.4 percent, they said, the report relays. According to the most recent forecast by the International Monetary Fund, Argentina's gross domestic product will increase by four percent this year, the report adds. About Argentina Argentina is a country located mostly in the southern half of South America. Its capital is Buenos Aires. Alberto Angel Fernandez is the current president of Argentina after winning the October 2019 general election. He succeeded Mauricio Macri in the position. Argentina has the third largest economy in Latin America. The country's economy is an upper middle-income economy for fiscal year 2019, according to the World Bank. Historically, however, its economic performance has been very uneven, with high economic growth alternating with severe recessions, income maldistribution and in the recent decades, increasing poverty. Last March 25, 2022, Argentina finalized agreement with the IMF for a new USD44 billion Extended Funding Facility (EFF) intended to fund USD40 billion in looming repayments of the defunct Stand-By Arrangement (SBA), with an extra USD4 billion in up-front net financing. This has averted the risk of a default to the IMF and is facilitating a parallel rescheduling of Paris Club debt. As reported by The Troubled Company Reporter - Latin America on Aug. 12, 2022, S&P Global Ratings affirmed its foreign and local-currency sovereign credit ratings of 'CCC+/C' on the Republic of Argentina. The outlook remains stable. S&P also affirmed its national scale 'raBBB-' rating and its 'CCC+' transfer and convertibility assessment. S&P said the stable outlook reflects the challenges in managing pronounced economic imbalances ahead of the 2023 national elections given disagreement on policy within the government coalition and financing pressures in the local market. Last April 14, 2022, Fitch Ratings affirmed Argentina's Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) at 'CCC'. Fitch said Argentina's 'CCC' ratings reflect weak external liquidity and pronounced macroeconomic imbalances that undermine debt repayment capacity, and uncertainty regarding how much progress can be made on these issues under a new IMF program. On July 19, 2022, Fitch Ratings placed Argentina's Long-Term Foreign Currency Issuer Default Rating (IDR) and Long-Term Local Currency IDR Under Criteria Observation (UCO) following the conversion of the agency's Exposure Draft: Sovereign Rating Criteria to final criteria. The UCO assignment indicates that ratings may change as a direct result of the final criteria. It does not indicate a change in the underlying credit profile, nor does it affect existing Rating Outlooks. Moody's credit rating for Argentina was last set at Ca on Sept. 28, 2020. DBRS has also confirmed Argentina's Long-Term Foreign Currency Issuer Rating at CCC and Long-Term Local Currency Issuer Rating at CCC (high) on July 21, 2022. =========== B R A Z I L =========== BANCO COOPERATIVO SICREDI: Moody's Affirms Ba2 CFR, Outlook Stable ------------------------------------------------------------------ Moody's Investors Service has affirmed all ratings assigned to Banco Cooperativo Sicredi S.A. (Sicredi), including the bank's long-term corporate family rating of Ba2, long- and short-term local issuer ratings of Ba2 and Not Prime, respectively, as well as its Baseline Credit Assessment (BCA) of ba2. The outlook remains stable. RATINGS RATIONALE The affirmation of Sicredi's Ba2 issuer rating acknowledges the cooperative bank's track record of solid credit fundamentals, supported by disciplined risk management, adequate capitalization and strong profitability. As a cooperative system, Sicredi benefits from granular and low-cost core deposit that shields the bank from market volatility and has supported the high growth pace of the franchise over the past five years. The Ba2 rating also reflects the complexities involved in operating a large federated cooperative system, congregating 108 financial cooperatives with over 6 million associates in Brazil. The bank is the central entity of Sistema de Credito Cooperativo Sicredi (Sicredi Group, or the Group) and members of Sicredi's individual credit unions are also the shareholders of those credit unions. Building up from its consolidated presence in rural areas and growing into large cities in Brazil to enhance its business diversification, Sicredi Group reported 32% of compound annual growth rate in the past five years, well above the expansion of industry credit in Brazil of 11% in the period. As reported, Sicredi's problem loans remained consistently low, at 1% on average between 2017 and 2021, well below the 2.7% average 90-day delinquency reported by the entire industry. At the same time, the bank also maintained a high reserve coverage ratio, equivalent to 4.8x its problem loans in December 2021, which will continue to mitigate rising asset risks related to the accelerated business growth, in times of high inflation pressure that will likely continue to strain on individuals' repayment capacity over the next quarters. With a high, direct and indirect, correlation to the agribusiness segment, the low level of delinquencies also reflects the high commodities prices that mitigates credit risks related to customers in the sector. Loans directed to finance crops or related operations accounted for 35.4% of total loans as of December 2021. However, its main business focus also exposed Sicredi to risks related to physical climate changes. Although Sicredi Group does not report consolidated capital metrics at the system level, Moody's assesses the capitalization to be strong and providing a significant cushion against potential losses. Under the system's by-laws, Sicredi's credit unions are required to comply with capital thresholds Sicredi sets that are well above the regulatory minimum. Sicredi Group's profitability metrics remained strong between 2020 and 2021 reflecting the high loan growth pace, consistently low delinquencies and lower cost of funding. In December 2021, net income to tangible assets reached 2.4%, significantly above 1.5% average for rated banks in Brazil in the same period. The group also benefit from the fact that income from cooperative lending activities is not taxable under Brazilian tax law. However, and despite Sicredi's well-established position in its core market, the bank is exposed to rising competition from large commercial banks that have increased their footprint in agribusiness, which will pressure future margins and bottom line results. Operating efficiency remained flat at 53.3% in 2021, despite the higher costs related to the franchise expansion, which has been largely helped by digital initiatives. Liquidity is managed centrally and operated by its banking entity. In addition, credit unions are protected by a cross guarantee in the event of any liquidity or capital needs, which has historical reflected into a conservative liquidity profile to the group. However, in 2021, the reduction in Sicredi's liquidity buffers, compared to historical levels, resulted from the high growth pace of the portfolio in the period (36.9% in 12 months ended in December 2021). Liquid assets to tangible banking assets ratio dropped to 26.4% at the end of 2021, from 40% average between 2015 and 2018. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Sicredi's BCA is constrained by Brazil's sovereign rating and as result it would only face upward pressure in the event of an upgrade in Brazil's bond rating. As the outlook on Brazil's ratings is stable, there is limited possibility for an upgrade in Sicredi's ratings. Negative pressure on Sicredi's ratings would derive from significant weakening in its loan portfolio performance that would pressure profitability and capital generation. A downgrade in Brazil's ratings would lead to a downgrade in Sicredi's ratings as well. METHODOLOGY USED The principal methodology used in these ratings was Banks Methodology published in July 2021. LIST OF AFFECTED RATINGS Issuer: Banco Cooperativo Sicredi S.A. Affirmed ratings and assessments: Long-term corporate family rating of Ba2, stable outlook Long-term local currency issuer rating of Ba2, stable outlook Short-term local currency issuer rating of Not-Prime Long-term local currency counterparty risk rating of Ba1 Short-term local currency counterparty risk rating of Not-Prime Long-term foreign currency counterparty risk rating of Ba1 Short-term foreign currency counterparty risk rating of Not-Prime Baseline credit assessment of ba2 Adjusted baseline credit assessment of ba2 Long-term counterparty risk assessment of Ba1(cr) Short-term counterparty risk assessment of Not Prime(cr) Outlook Actions: Outlook, Remains stable BRAZIL: Foreign Direct Investment Soars 52%, Central Bank Says -------------------------------------------------------------- Rio Times Online reports that Brazilian FDI (Foreign Direct Investment) recorded the highest net inflow of funds in 11 years. From January to May this year, it amounted to USD 39.7 billion, reaching the highest level since 2011, when it was USD 41.9 billion, notes the report. The Central Bank (BC) released the data on Aug.26 as part of the statistical report on the external trade balance, according to Rio Times Online. About Brazil Brazil is the fifth largest country in the world and third largest in the Americas. Jair Bolsonaro is the current president, having been sworn in on Jan. 1, 2019. As reported in the Troubled Company Reporter-Latin America on July 18, 2022, Fitch Ratings has affirmed Brazil's Long-Term Foreign Currency Issuer Default Rating at 'BB-' and revised the Rating Outlook to Stable from Negative. On June 17, 2022, S&P Global Ratings affirmed its 'BB-/B' long- and short-term foreign and local currency sovereign credit ratings on Brazil. Moody's Investors Service also affirmed on April 15, 2022, Brazil's long-term Ba2 issuer ratings and senior unsecured bond ratings, (P)Ba2 senior unsecured shelf ratings, and maintained the stable outlook. DBRS Inc. confirmed Brazil's Long-Term Foreign and Local Currency Issuer Ratings at BB (low) on Aug 12, 2022. At the same time, DBRS Morningstar confirmed the Federative Republic of Brazil's Short-term Foreign and Local Currency Issuer Ratings at R-4. The trend on all ratings is Stable. ULTRAPAR PARTICIPACOES: Moody's Affirms Ba1 CFR, Outlook Now Stable ------------------------------------------------------------------- Moody's Investors Service has affirmed Ultrapar Participacoes S.A.'s Ba1 Corporate Family Rating and the Ba1 rating of the Backed Senior Unsecured Notes issued by Ultrapar International S.A, guaranteed by Ipiranga Produtos de Petroleo S.A (Ipiranga) and Ultrapar. The outlook was changed to stable from negative. Affirmations: Issuer: Ultrapar Participacoes S.A. Corporate Family Rating, Affirmed Ba1 Issuer: Ultrapar International S.A. Gtd Senior Unsecured Regular Bond/Debenture, Affirmed Ba1 Outlook Actions: Issuer: Ultrapar International S.A. Outlook, Changed To Stable From Negative Issuer: Ultrapar Participacoes S.A. Outlook, Changed To Stable From Negative RATINGS RATIONALE The change in the outlook to stable reflects an improvement in Ultrapar's capital structure following a reduction in its debt balance and the expectation of improving EBITDA generation in 2022 and 2023. By year-end 2022 Moody's expects Ultrapar to reach a gross leverage of 3.3x compared to 3.4x in the LTM ended June 2022. Moody's believes the changes in management, undertaken since late in 2021, will allow Ipiranga to improve its competitive position and return to a higher level of profitability. Ipiranga is Ultrapar's main subsidiary, responsible for 64% of total EBITDA in 2021, focused on the fuel distribution business. Ultrapar's Ba1 ratings reflect the company's stable cash flow and leading positions in different segments in Brazil: fuel and liquefied petroleum gas distribution and storage of liquid bulk. Liquidity is also adequate. As of June 2022, Ultrapar had BRL6.1 billion in cash and cash equivalents, compared with BRL3.7 billion in short-term debt maturities (including operating leases). Ultrapar pre-paid $600 million in bonds after having received the first installment for the sale of Oxiteno S.A. (a chemical company with operations in Brazil, United States, Mexico, and other countries) which was executed in April 2022 for a total of $1.3 billion, equivalent to BRL6.3 billion at the time. Although the sale reduces Ultrapar business diversification, proceeds from the divestment were used to reduce debt and adequate its capital structure to the cash generation capacity of the remaining assets. Debt balance between December 2021 and June 2022 reduced from BRL17.7 billion to BRL14.5 billion. Ultrapar still expects to receive a second installment of $150 million for the sale of Oxiteno in April 2024. In August 2022 Ultrapar received BRL372 million for the sale of Extrafarma and it will receive another two parcels of BRL183 million each in 2023 and 2024. Ultrapar ratings are constrained by its revenue concentration on the core fuel distribution segment. The company also has a history of growth via M&A which could pressure credit metrics periodically and include execution risk. An uneven execution lead to a gradual reduction in margins since 2018 and a sustained high gross leverage in the same period. But, following its divestment program, Moody's expects the company to sustain a gross leverage below 4.0x. Like other fuel distributors in Brazil, Ultrapar has a dependency on a few key suppliers for raw materials with Petroleo Brasileiro S.A. – PETROBRAS (Ba1 stable) being responsible for the bulk of its fuel supply. In June 2021, Moody's-adjusted gross leverage was 3.4x. Starting on the Q4 2021 Ultrapar has reported Oxiteno and Extrafarma as assets for sale – carved-out from its financial statements. Moody's Adjusted EBITDA margin was 2.5% in 2021, in line with 2020, and 3.7% in the first half of 2022. Moody's expects margins to remain above 3.0% in the next 12 to 18 months for the full year based on increasing fuel sales, higher fuel prices and favored by efficiency gains on its fuel distribution operations, when compared to 2021. Ultrapar's stable outlook incorporates Moody's expectation that liquidity will remain adequate, and leverage will reduce in the next 12 to 18 months. It also incorporates that any asset acquisition or shareholder distribution will be prudently managed as not to deteriorate the company`s liquidity and downward trend for leverage metrics. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS An upgrade of Ultrapar's rating is unlikely in the near term. Ultrapar would need to diversify its business profile by reducing the concentration in the fuel distribution business, increase its operating margin, reduce its gross leverage, and maintain its strong liquidity profile. A downgrade of the Government of Brazil's rating (Ba2 stable) could trigger a downgrade of Ultrapar's ratings. Quantitatively, a downgrade could occur if there is a deterioration in the group's liquidity, accompanied by the following: (i) Leverage (debt/EBITDA) remaining above 4.0x without prospects of deleveraging in the near term; (ii) Interest coverage (EBIT/interest expense) remaining below 2.5x for a prolonged period, and (iii) Retained Cash Flow/Net Debt remaining below 20% for a prolonged period. The principal methodology used in these ratings was Retail published in November 2021. Ultrapar Participacoes S.A. (Ultrapar), headquartered in Sao Paulo, Brazil, operates in the segments of fuel distribution and convenience stores through its subsidiary Ipiranga, liquefied petroleum gas – LPG distribution through its subsidiary Ultragaz, and storage services for liquid bulk through its subsidiary Ultracargo. In 2021, Ultrapar's consolidated net revenue (according to Moody's standard adjustments) was BRL109.7 billion, with an operating margin of 1.3%. Ipiranga is the group's largest business segment, representing 90% of its consolidated net revenue and 64% of EBITDA in 2021. =================== C O S T A R I C A =================== BANCO DE COSTA RICA: Fitch Affirms 'B' LT IDR, Outlook Stable ------------------------------------------------------------- Fitch Ratings has affirmed Banco de Costa Rica's (BCR) Foreign and Local Currency Long-Term Issuer Default Ratings (IDRs) at 'B' and Short-Term Foreign and Local Currency IDRs at 'B'. Fitch has also affirmed the bank's Viability Rating (VR) at 'b' and the Government Support Rating (GSR) at 'b'. The Rating Outlook on the Long-Term IDRs remains Stable. KEY RATING DRIVERS Sovereign Support: Banco de Costa Rica's (BCR, or the bank) IDRs are driven by the support it would receive from its sole parent entity, the Republic of Costa Rica (B/Stable). BCR's GSR reflects Fitch's assessment of the potential support the bank would receive, if needed, from its single owner, the Costa Rican government. In terms of ability to support the bank, Fitch considers, with high importance, the Costa Rican sovereign rating. High Systemic Importance: Fitch's assessment of the government's propensity to provide support is highly driven by the nature of BCR as a state-owned bank and, given its policy role, the explicit guarantee stated in the National Banking System Law, which stipulates that the government is responsible for all non-subordinated liabilities of the state-owned banks in the event of their liquidation. Fitch believes the Costa Rican government's recent announcement of an intention of sale of state-owned assets, including BCR, does not have an immediate impact BCR's ratings. The transaction would be contingent on its formalization and approval, a process that could take significant time. However, once the sale is approved and legally feasible and the process is formally started, or Fitch believes there is a significant probability or certainty that the sale will take place, BCR´s ratings would likely be placed on Rating Watch, as Fitch will evaluate the impact of the transaction on the support its owner could provide and possible effects on the bank's business prospects and financial profile. Sound Business Profile: BCR's VR reflects its strong franchise, good universal banking business model and policy role, namely in providing financial services to Costa Rica's productive sectors. BCR is the head company of a state-owned business conglomerate which offers wide-ranging and complementary financial services. As of June 2022, its overall market share is around 20% of the total market by gross loans with a strong competitive position as the largest bank in Costa Rica and pricing power on both sides of the balance sheet. Its business model has historically yielded low-volatility earnings, totaling a four-year average total operating income of USD485 million and long-standing client relationships on both wholesale and retail banking. Controlled Asset Quality and Adequate Profitability: Fitch views BCR's asset quality as manageable and expects it to remain commensurate with its current rating category. As of June 2022, its 2.84% impaired loans ratio remains above its historical average of 2.54% and most of its peers. On another hand, loans loss allowances over impaired loans indicator of around 150% are considered prudent given the current situation and remain consistent since 2020. Fitch believes BCR can maintain operating profitability levels in accordance to its business model, focused on corporate and commercial financing alongside residential mortgages. As of 2Q22, operating profits-to-risk-weighted assets (RWA) ratio was 2.1%, above its 2018-2021 average of 1.7% and benefitted by effective cost control and low LICs. NIM is somewhat pressured but increased business volume would compensate by fiscal year end. Sufficient Equity and Sound Funding and Liquidity: The bank's capitalization is considered adequate as its Fitch Core Capital (FCC) ratio of 12.8% as of June 2022 (2018-2021 average: 13.2%), provides a satisfactory loan loss absorption capacity. The bank's funding structure and liquidity ratios are sound, reflected by an 83.2% loans-to-deposits ratio and stable deposits resulting from its current market position and ordinary government support. Favorably, concentrations by the top 20 debtors are down to 25%, a moderate level after reaching 30% last year. Fitch expects liquidity metrics to remain sound albeit slightly lower than current registries for the remainder of 2022 as it is expected that credit growth will be boosted by use of liquid assets. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: -- BCR's IDRs and GSR will be downgraded in the event of a downgrade in Costa Rica's sovereign ratings; -- BCR's VR is will be downgraded by a downward revision of Fitch's assessment of the Costa Rican OE. Also, by a material loan portfolio deterioration that affects operating profitability and pressures the FCC to RWA ratio consistently below 9%. -- A change in Fitch's perception regarding the sale prospects becoming effective in the short term or within a reasonable timeframe. Fitch would then revise the expected effects on the bank's ratings and likely place them on Rating Watch. Factors that could, individually or collectively, lead to positive rating action/upgrade: -- BCR's IDRs, VR and GSR could be upgraded in the event of an upgrade of Costa Rica's sovereign rating and country ceiling; -- An upward revision of Fitch assessment of the Costa Rican OE in conjunction with a consistent financial performance and business profile could lead to an upgrade of BCR's VR. The sovereign rating acts as a cap to the banks' VR. VR ADJUSTMENTS The OE Score of 'b' has been assigned below the 'bb' category implied score due to the following adjustment reason: Sovereign Rating (negative). SUMMARY OF FINANCIAL ADJUSTMENTS Fitch calculated the consolidated operation's RWAs and related metrics by using BCR's individual risk weighted assets and those of its main subsidiary, BICSA. Also, total capital ratio for the consolidated operation was calculated using the capital base of the bank and each of its regulated and non-regulated subsidiaries. All input for these calculations were taken from the consolidated financial statements of both BCR and BICSA. Pre-paid expenses and other deferred assets were reclassified as intangible and deducted from total equity in order to calculate FCC. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS BCR's ratings are linked to the Costa Rican sovereign rating. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Rating Prior ------ ----- Banco de Costa Rica LT IDR B Affirmed B ST IDR B Affirmed B LC LT IDR B Affirmed B LC ST IDR B Affirmed B Viability b Affirmed b Gov't Support b Affirmed b BANCO NACIONAL DE COSTA RICA: Fitch Affirms 'B' LongTerm IDRs ------------------------------------------------------------- Fitch Ratings has affirmed Banco Nacional de Costa Rica's (BNCR) Long-Term (LT) Foreign and Local Currency Issuer Default Ratings (IDRs) at 'B', and Short-Term (ST) Foreign and Local Currency IDRs at 'B'. In addition, Fitch has affirmed BNCR's Viability Rating (VR) at 'b', and National Scale Ratings at 'AA+(cri)' and 'F1+(cri)' for the LT and ST ratings, respectively. The Rating Outlook for the LT ratings is Stable. Fitch also affirmed BNCR's international and national debt ratings. KEY RATING DRIVERS Sovereign Support: BNCR's IDRs, Government Support Rating (GSR) and National Ratings reflect Fitch's assessment of the potential support the bank would receive if needed from its single owner, the Costa Rican government, rated 'B'/Stable by Fitch. In terms of the ability to support BNCR, Fitch considers, with high importance, the Costa Rican sovereign rating. The government propensity to support is driven, with high influence, by the explicit guarantee stated in the National Banking System Law (article 4) for the BNCR as a state-owned bank, and which stipulates that the government is responsible for all non-subordinated liabilities of the state-owned banks in the event of their liquidation. Leading Franchise: BNCR's VR is influenced by Fitch's assessment of the Costa Rican operating environment (OE) at 'b'/Stable, which is at the same level of the sovereign rating of 'B'/Stable. The bank's VR also reflects its sound business profile characterized by its leading franchise as the largest player in the Costa Rican banking system, with the highest market shares. As of June of 2022, BNCR market share was 24.3% by loan portfolio and 25.9% by deposits. The current economic recovery and favorable performance of banks may be challenged by effects from external events, ultimately reflected in accelerated inflationary pressures, unexpected and important interest rates hikes, and an increasing devaluation; however, so far, these exposures are considered to be already incorporated in the 'b' assessment as long as improved fiscal conditions and better economic prospects persist, as well as the new administration's public policies are consolidated. Credit Quality Well Managed: Despite BNCR's asset quality was pressured in 1H22 as the impaired loans increase after the reduction in FY21, also reflected in the core metric, Fitch believes the asset quality is manageable. Since beginning 2022, new relief measures are no longer granted to debtors. Notwithstanding the important credit growth, the impaired loans to gross loan metric stood at 2.9% as of June 2022 (December 2021: 2.7%), standing below the average of the two pre-pandemic fiscal years 2018-2019 (3.3%), but remaining above the banking system's (June 2022: 2.5%). Expected losses from loan deterioration could be mitigated by the reserve coverage of non-performing loan, close to 114% (system: 168%), maximum level across the periods analyzed, and a significant level of real guarantees (38% of its loan portfolio). Profitability Improving: The bank's profitability improved in 1H22 as the economic recovery fostered business expansion, and mainly reflecting the significant deceleration in the building of allowance for loan losses. Efforts in boosting the net interest margin, mainly through the reduction of the deposit cost, have been also executed. The bank's core profitability metric, operating profit as a share of risk-weighted assets (RWA), increased to 2.1% (December 2021: 1.1%), the highest record of the periods analyzed. The improvement in profitability will likely continue in 2H22 underpinned by the above factors but at a slower pace due to expected pressures on operational efficiency, specifically higher personnel expenses because of the acceleration in inflation. Capitalization to Support Business Expansion: Fitch believes that BNCR's capitalization is adequate to support the expected credit expansion of one digit, and is benefited by a better internal capital generation under the prevailing economic environment. As of June 2022, the bank's FCC to RWA ratio decreased to 12.1% (December 2021: 12.5%), comparing below that of some of its local peers. While the regulatory capital ratio increased to 13.7% (December 2021: 13.1%), comparing below that of the private-owned banks (March 2022: 13.9%). Solid Funding Structure: BNCR's funding structure is one of its main credit strengths, reflecting its leading franchise in deposits, a diversified funding profile and the government support. Its customer deposit base (86% of total funding as of June 2022), key funding source, continued increasing during the 1H22 (2.4%) which, along with a relatively more dynamic credit expansion, reversed the decreasing trend of the loan-to-deposit ratio to 75.8% as of June 2022 (system: 86.5%). The depositors' concentration is moderate but manageable since the top 20 depositors accounted for about 23% of total customer deposits as of June 2022. Around 55% of the top depositors' balance are Costa Rican renowned state-related entities; whereas 17% are deposits related to BNCR's subsidiaries. Historical deposit stability, wide access to alternative funding sources and material liquid assets mitigate the institution's exposure to the liquidity risk. Senior Unsecured Debt: All senior unsecured debt is rated at the same level as the bank's ratings in Fitch's international and national scales, as the likelihood of default on the debt is the same as BNCR's. In accordance with Fitch's rating criteria, the recovery prospects in the event of a default of the senior unsecured debt of BNCR are average and are reflected in a Recovery Rating of 'RR4'. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: -- BNCR's IDRs and GSR will be downgraded in the event of a downgrade in Costa Rica's sovereign rating and Country Ceiling; however, currently, this is not Fitch's base case given the sovereign rating Stable Outlook; -- The bank's VR will be downgraded by a downward revision of Fitch's assessment of the Costa Rican OE; however, currently, this is not Fitch's base case given the OE's stable trend. Also, by a materially further loan portfolio deterioration that affects operating profitability and pressures the FCC to RWA ratio consistently below 9%; -- A downgrade of BNCR's National Ratings would reflect a weakening in the ability and propensity of the Costa Rican government to provide support, in relation to the creditworthiness of other entities in the same jurisdiction; -- The bank's senior unsecured debt would mirror any negative change in the BNCR's international and National Ratings. Factors that could, individually or collectively, lead to positive rating action/upgrade: -- BNCR's IDRs, VR and GSR could be upgraded in the event of an upgrade of Costa Rica's sovereign rating and Country Ceiling; however, currently, this is not Fitch's base case given the sovereign rating Stable Outlook; -- Although not Fitch's base case, an upward revision of Fitch assessment of the Costa Rican OE in conjunction with a consistent financial performance and business profile could lead to an upgrade of BNCR's VR. The sovereign rating acts as a cap to the bank's VR; -- An upgrade of BNCR's national ratings would reflect a strengthening in the ability of the Costa Rican government to provide support, which benefits the bank's credit profile in relation to the creditworthiness of other entities in the same jurisdiction; -- The bank's senior unsecured debt would mirror any positive change in the BNCR's international and national scale ratings. VR ADJUSTMENTS The OE Score of 'b' has been assigned below the 'bb' category implied score due to the following adjustment reason: Sovereign Rating (negative). The Business Profile Score of 'bb-' has been assigned above the 'b' category implied score due to the following adjustment reason: Market Position (positive). SUMMARY OF FINANCIAL ADJUSTMENTS Fitch reclassified prepaid expenses, deposits as guarantee, construction in process and other deferred assets as intangibles and deducted them from total equity to reflect their low absorption capacity. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS BNCR's ratings are linked to the Costa Rican sovereign rating. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3' - ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Rating Prior ------ ----- Banco Nacional de Costa Rica LT IDR B Affirmed B ST IDR B Affirmed B LC LT IDR B Affirmed B LC ST IDR B Affirmed B Natl LT AA+(cri) Affirmed AA+(cri) senior unsecured Natl LT AA+(cri) Affirmed AA+(cri) Gov't Support b Affirmed b senior unsecured Natl ST F1+(cri) Affirmed F1+(cri) senior unsecured LT B Affirmed RR4 B BANCO POPULAR Y DE DESARROLLO: Fitch Affirms 'B' IDRs ----------------------------------------------------- Fitch Ratings has affirmed Banco Popular y de Desarrollo Comunal's (BPDC) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'B' and Short-Term Foreign and Local Currency IDRs at 'B'. The Rating Outlook on the Long-Term Rating is Stable. In addition, Fitch has affirmed the bank's Viability Rating (VR) at 'b' and national ratings at 'AA+(cri)' and 'F1+(cri), and revised the Rating Outlook on the National Long-Term Ratings to Stable from Negative. KEY RATING DRIVERS IDRs, National Ratings and Senior Debt BPDC's IDRs are driven by its 'b' VR, which is one notch below its implied 'b+' due to the high influence of Fitch's assessment of Costa Rica's operating environment (OE) at 'b'/Stable. The ratings reflect BPDC's consistent business profile, sound capital metrics, adequate asset quality and profitability and stable funding structure. The Outlook revision of the National Long-Term Rating to Stable reflects the bank's improved financial metrics which compare with other local banks rated at the same level. Fitch considers the influence of BPDC's public nature on its business profile, which also strengthens some of its financial metrics, such as capitalization, which consistently receives inflows from mandatory contributions from Costa Rican employers. The bank's business profile is also characterized by its strong franchise in Costa Rica, which is reflected in a high market share in both credit and deposits, the latter also benefiting from mandatory savings from the country's workforce. Fitch believes BPDC's strongest financial metric is its high capitalization. As of June 2022, the bank's FCC was 29.2%, which is well above local and international peers. This metric, along with the increased provision coverage, results in a sound loan loss absorption capacity in the event of a deterioration in asset quality. Given the bank's business model and benefits from mandatory contributions from Costa Rican workers and employers, Fitch expects the bank to sustain high capital metrics. The bank's asset quality reflects the bank's risk profile, which is characterized by adequate underwriting standards. The four-year average NPL ratio is 2.6%, similar to other local bank's rated at the same level; this ratio shows a recent improvement aided in part from higher charge offs and more stringent collection processes. Fitch's assessment of BPDC's adequate asset quality also considers the recent increase in loan loss allowances driven by the bank's strategy of anticipating a possible increase in loan delinquency; in that scenario, the bank is well prepared to contain such asset deterioration. BPDC's profitability metrics show signs of improvement. Although the four-year average ratio of operating profit to RWA is a relatively modest 2.3%, the YE 2021 ratios and six-month-ended 2022 have considerably improved to over 3.5%. Profits have benefitted recently from management's effort to prioritize low-cost funding, which is reflected in a reduction in interest expense and from greater than usual investment gains. Current profit metrics might not be sustained in the future given growing pressures of macroeconomic conditions such as high inflation and interest rates hikes. Fitch believes BPDC's funding and liquidity profile is reasonable and does not expect significant structural changes in the foreseeable future. The bank's four-year average ratio of loans to customer deposits is around 130%, above its peers; hence, the bank also relies on other sources of funding such as bilateral loans and debt issuances. BPDC´s customer deposits also benefit from mandatory contributions from the country's workforce. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: -- BPDC's IDRs could mirror a downgrade of Costa Rica's sovereign rating; -- While not Fitch's base case scenario, changes in the business profile that diminish the advantages granted by law would pressure the bank's international and national ratings; -- BPDC's IDRs and VR could be downgraded if there is a downward revision of Fitch's assessment of the Costa Rican operating environment. In addition, a sustained deterioration of financial metrics such as asset quality or profitability could result in a downgrade. Factors that could, individually or collectively, lead to positive rating action/upgrade: -- IDRs and VR: An improvement of the operating environment that strengthens the bank's financial metrics could lead to an upgrade of its VR and IDR, as well an upgrade of Costa Rica's sovereign rating and country ceiling. OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS All senior unsecured debts are rated at the same level as the issuer's Long- and Short-Term Rating in national scale, as the likelihood of default on the debt is the same as BPDC. Fitch believes the bank's 'b-' GSR, one notch below the sovereign's IDR, reflects the limited probability of support from the Costa Rican government and its current ability to support the bank. Despite the bank's legally protected public nature, as well as its systemic importance, there is no government explicit guarantee which would likely equalize the ratings. The GSR indicates the minimum level to which the entity's Long-Term IDRs could fall if Fitch does not change its view on potential sovereign support. The country's highly concentrated banking system and limited financial flexibility are the main limitations to the sovereign's ability to provide support. OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES -- The bank's senior unsecured debt would mirror any positive or negative change in the BPDC's ratings. -- BPDC's GSR could mirror a downgrade on Costa Rica's sovereign rating; -- BPDC's GSR is sensitive to changes in the sovereign rating. Fitch's base case scenario anticipates BPDC maintaining its current systemic importance and business profile and, therefore, changes to the GSR are unlikely. VR ADJUSTMENTS The 'b' VR has been assigned below the 'b+' implied rating due to a negative adjustment driven by the operating environment, which is assessed at 'b'. The operating environment score of 'b' has been assigned below the 'bb' category implied score due to a negative adjustment reflecting the current 'B' sovereign rating. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Rating Prior ------ ----- Banco Popular y de Desarrollo Comunal LT IDR B Affirmed B ST IDR B Affirmed B LC LT IDR B Affirmed B LC ST IDR B Affirmed B Natl LT AA+(cri) Affirmed AA+(cri) Natl ST F1+(cri) Affirmed F1+(cri) Viability b Affirmed b Gov't Support b- Affirmed b- senior unsecured Natl LT AA+(cri) Affirmed AA+(cri) senior unsecured Natl ST F1+(cri) Affirmed F1+(cri) ======= C U B A ======= [*] Cubans Flock to Buy Coveted Dollars as New Policy Takes Effect ------------------------------------------------------------------ Juan Carlos Espinosa Havana at EFE News reports that Cubans were authorized as of Aug. 23 to purchase foreign currency from the government, including the coveted US greenback. The new policy, which applies exclusively to natural persons and only to cash transactions, was announced on state television by Economy and Planning Minister Alejandro Gil, according to EFE News. The news spread rapidly, with people descending upon the 37 official exchange offices (known as CADECAs) set up for that purpose, the report notes. The new policy sets a per-person transaction limit of $100 a day, or the equivalent amount in another foreign currency, the report notes. One local said the ceiling is too low, though adding she understands the government lacks sufficient hard currency to make more available at this time, the report discloses. The government has been buying foreign currency since early August at a rate of around 120 Cuban pesos (CUP) per dollar, and also began selling greenbacks at a very similar rate, the report notes. Until the start of this month, only state companies and agencies had been legally authorized to carry out these peso-dollar transactions - at a rate of 24 CUP per dollar, the report discloses. Under the new policy, those entities still have access to dollars at that much more favorable rate, the report relays. The president of Cuba's Central Bank, Marta Sabina Wilson Gonzalez, said on television that the new currency exchange market also has another limit: sales of dollars and other foreign currency by the government will depend on how much of that hard currency it had previously purchased, the report relays. Cuba's economy minister, however, said that such deposits are not yet permitted, the report notes. In a second stage, natural persons will be able to buy foreign currency at banks and through bank accounts, the report relays. Plans also are in the works to increase the number of currency exchange offices, the report discloses. The Cuban government made the policy shift in a bid to tackle a black market where on Aug. 23 dollars were available for purchase at a rate of 138 CUP per greenback, albeit without any per-day limits, the report relays. Cuba imports 80 percent of the basic goods it requires, according to the United Nations, and the Communist-ruled island's current supply shortages are due in part to the government's dearth of hard currency, the report notes. Gil stressed the importance of the launch of the new currency market, saying it has allowed the government to access hard currency "that wasn't entering the national financial system," the report discloses. In that regard, Wilson Gonzalez said that since Aug. 4 the government has obtained "10 times more foreign currency" than in the entire month prior to the policy shift, the report notes. "This new exchange rate encourages people to sell to the financial system," the Central Bank president added, the report relays. According to Wilson Gonzalez, the eventual goal is to advance toward a "single exchange rate," the report notes. The Cuban government had not bought and sold dollars since the greenback was officially replaced in October 2004 by the convertible peso (CUC), a substitute for the US currency that was eliminated at the start of 2021, the report adds. ============= J A M A I C A ============= DIGICEL GROUP: Appoints John Townsend as Chief Financial Officer ---------------------------------------------------------------- RJR News reports that Digicel disclosed the appointment of John Townsend as Chief Financial Officer. Immediately prior to joining Digicel, Mr Townsend was Chief Financial Officer-Business Group at Verizon, and also served in the CFO capacity across various areas of the business for the past 10 years, according to RJR News. He also worked as Chief Financial Officer for Vodafone Europe, UK and Australia and earned his degree in accounting and business finance from The University of Manchester, the report notes. About Digicel Group Digicel Group is a mobile phone network provider operating in 33 markets across the Caribbean, Central America, and Oceania regions. The company is owned by the Irish billionaire Denis O'Brien, is incorporated in Bermuda, and based in Jamaica. As reported in the Troubled Company Reporter-Latin America on Aug. 11, 2022, Moody's Investors Service has confirmed Digicel Group Holdings Limited's Caa2 corporate family rating, its Caa2-PD probability of default rating and Ca senior unsecured ratings. Moody's also confirmed the senior unsecured ratings of Digicel Group Two Limited, Digicel Limited and the senior secured ratings of Digicel International Finance Limited. Concurrently, Moody's downgraded the senior unsecured and subordinated ratings of Digicel International Finance Limited to Caa3 from Caa2. The outlook was changed to negative. In May 12, 2022, the TCR-LA reported that Fitch Ratings has affirmed the Long-Term Issuer Default Rating of Digicel Group Holdings Limited (DGHL) at 'CCC' and removed the Rating Watch Positive (RWP) on all ratings. The IDR of Digicel Limited (DL) has been downgraded to 'CCC+' from 'B-' and the IDR Digicel International Finance Limited (DIFL) has been affirmed at 'B-' with a Stable Rating Outlook. JAMAICA: Jamaican Dollar Depreciates at Slower Rate v. USD ---------------------------------------------------------- RJR News reports that the Jamaican dollar realized a 0.1 per cent depreciation compared to the US currency for the April to June quarter. The Planning Institute of Jamaica (PIOJ) says this reflects a slower rate of movement compared to last year, according to RJR News. This was a more favorable movement compared to the same period last year, the report notes. The average exchange rate in dollar terms at the end of June was $151.56 for every US dollar, the report relays. This is compared to $153.78 at the end of March this year, the report discloses. The Bank of Jamaica (BOJ) has indicated that a number of interventions to stabilize the market have helped to slow the rate of depreciation, the report adds. As reported in the Troubled Company Reporter-Latin America in March 2022, Fitch Ratings has affirmed Jamaica's Long-Term Foreign Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook is Stable. ================= V E N E Z U E L A ================= VENEZUELA: Bolivar's Crash Breaks Rare Stretch of Stability ----------------------------------------------------------- globalinsolvency.com, citing Bloomberg News, reports that the bolivar is plummeting, breaking a rare stretch of stability for Venezuela's battered currency. It has lost a third of its value so far this month, hitting 9.33 bolivars per US dollar on the parallel exchange market, according to data compiled by Bloomberg, reports globalinsolvency.com. That's the steepest monthly decline since January 2021, the report notes. Controlling the exchange rate has been a key ingredient of President Nicolas Maduro's strategy to halt a four-year hyperinflation bout, which ended in December, the report says. The currency, which had consistently lost nearly all of its value over the years, was relatively stable since a redenomination in October as the central bank poured hundreds of millions of dollars into the exchange market to keep it in check, the report recalls. The bolivar started to show weakness in the parallel market at the end of last month, though most of the losses have occurred, the report says. The spread between the parallel rate and the official central bank rate of 7 bolivars per dollar is now the widest since October, when six zeros were slashed from the currency in the redenomination, adds the report. As reported in the Troubled Company Reporter-Latin America in September 2021, S&P Global Ratings withdrew its 'SD/D' foreign currency sovereign credit ratings and 'CCC-/C' local currency ratings on Venezuela due to lack of sufficient information. At the same time, S&P withdrew its 'D' issue rating on 15 bonds. VENEZUELA: Oil Output Now Well Short of Maduro's Lofty 2022 Target ------------------------------------------------------------------ EFE News reports that Venezuelan oil production, which has fallen by 28 percent since last December after briefly recovering in the latter part of 2021, is slipping farther away from President Nicolas Maduro's target of 2 million barrels per day by year's end. An increase of 218 percent above July's level of 629,000 bpd is now required to reach that ambitious goal, according to EFE News. Despite the recent drop-off and the limited amount of time remaining in 2022, the leftist head of state still insists Venezuela will reach its objective "come rain or shine" and that the growth will continue apace until a level of 3 million bpd is attained next year, the report notes. As reported in the Troubled Company Reporter-Latin America in September 2021, S&P Global Ratings withdrew its 'SD/D' foreign currency sovereign credit ratings and 'CCC-/C' local currency ratings on Venezuela due to lack of sufficient information. At the same time, S&P withdrew its 'D' issue rating on 15 bonds. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Latin America is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T. Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2022. All rights reserved. ISSN 1529-2746. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Latin America subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter A. Chapman at 215-945-7000. . * * * End of Transmission * * *