Research: Rating Action: Moody’s assigns Ba1 deposit rating to Multibank for the first time, stable outlook

New York, July 15, 2022 — Moody’s Investors Service (“Moody’s”) today assigned Ba1/Not Prime long and short-term currency deposit ratings to Multibank, Inc. (Multibank), along with a baseline ba1 credit assessment (BCA) and adjusted BCA. At the same time, Moody’s assigned Multibank long- and short-term counterparty risk ratings of Baa3 and P-3, respectively, and long- and short-term counterparty risk ratings of Baa3(cr) and P-3(cr), respectively. The outlook is stable.

The following ratings and reviews have been assigned to Multibank, Inc. (821896045):

Long-term global foreign exchange deposit rating of Ba1, stable outlook

Not Prime Global Short Term Foreign Currency Deposit Rating

Long-term counterparty risk assessment of Baa3(cr)

Short-term counterparty risk rating of P-3(cr)

Baa3 Long Term Currency Counterparty Risk Rating

Short-term foreign currency counterparty risk rating of P-3

Adjusted basic credit rating of ba1

ba1 basic credit score

Attributed Outlook: Stable

RATINGS RATIONALE

Multibank’s ba1 BCA incorporates the bank’s good capitalization metrics, which are supported by the low dividend distribution policy and a well-established franchise in the corporate banking sector as a leading lender for certain economic segments and segments auto financing in Panama (Baa2 stable).

The BCA of ba1 reflects the recent deterioration in the level of the bank’s problem loans measured as loans classified in stage 3 (IFRS9) which reached 5.9% in March 2022, compared to 4.8% of gross loans in December 2021, and above 1.9 pre-pandemic % at the end of 2019. Over the next two to three quarters, problem lending is expected to decline, supported by the steady economic recovery in Panama, forecast for 2022 and 2023, which continues to benefit the repayment capacity of borrowers and the performance of businesses. Multibank’s low reserve coverage for Phase 3 loans, at just 35.8% in March 2022, also remained well below the 80% average reported by its peers in Panama over the same period. However, the bank’s loan portfolio benefits from a high level of loan overcollateralisation and low borrower concentration (Top 20 borrowers accounted for 6% of gross loans and 0.5x of Tangible common equity (TCE) March 2022), factors that mitigate the low credit loss coverage rate maintained by the bank under IFRS. Additionally, exposures to inherently risky segments of the economy, such as lending to the commercial real estate (CRE) segment, are also relatively low compared to peers.

Multibank’s capital position is a positive credit driver as the bank has always maintained a solid capitalization, which will be supported by a more conservative dividend policy over the next few years, as well as the recovery in profit generation expected for 2022. In March 2022, the bank’s TCE to The ratio of risk-weighted assets (TCE/RWA), Moody’s preferred capital indicator, remained at around 14%.

In terms of profitability, weak performance in 2020 and 2021 is the result of higher loan loss provisioning, lower loan margin and weak growth limited by weakened business conditions over the course of the year. period. In the first quarter of 2022, the economic recovery supported the volume of activity and the reduction in provisioning needs, which improved the net results of the quarter compared to the previous periods. In March 2022, net income increased to 0.42% of tangible assets, compared to 0.31% in December 2021, while still remaining below the 1.02% recorded in 2019. Rising interest rates in Panama , combined with an acceleration in credit origination, will continue to support Multibank’s net result. interest income and margins. In March 2022, the net interest margin improved to 2.6% from 2.2% at the end of 2021, reaching pre-pandemic levels.

As a medium-sized bank, Multibank is largely funded by market resources, which accounted for 30.2% of tangible banking assets in March 2022, more than its peers in the country. This concentrated funding mix increases the bank’s vulnerability in times of global volatility. Multibank’s liquidity strategy has focused on expanding its domestic core deposits over the next 3 years, which will reduce reliance on market funding, increase resource granularity and strengthen liquidity management.

Multibank’s foreign currency deposit rating Ba1 is at the same level as its BCA and adjusted BCA of ba1. Moody’s incorporates a very high probability of support from its ultimate parent, Banco de Bogotá SA (Baa2 stable, ba1) which, however, results in no rating upgrade by affiliate support, as Banco de Bogotá’s BCA is also ba1, at the same time Multibank’s BCA level.

Corporate governance is highly relevant to bank solvency and is largely internal rather than external, and for Multibank we have no governance issues. Multibank has an appropriate risk management framework commensurate with its risk appetite and has improved since its acquisition by Banco de Bogota, and offsets the risks arising from concentrated shareholding and a complex organizational structure. As such, corporate governance remains a key credit consideration and requires ongoing monitoring.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

An upgrade in Multibank’s ratings would stem from a sustained reduction in the level of problem loans, combined with an increase in loan loss reserve coverage that would support loss absorbency as the bank expands its business beyond beyond its current purpose. Positive pressure would also be exerted by a constant improvement in profitability to the benefit of equity ratios.

Conversely, the rating could be downgraded in the event of further deterioration in asset metrics, high problem loans and low coverage ratios which could persist if the bank’s high level of modified loans leads to higher credit losses. high. This scenario would in turn compromise profitability and capital buffers.

The main methodology used in these ratings is the Methodology for Banks published in July 2021 and available on https://ratings.moodys.com/api/rmc-documents/71997. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following information, if applicable to the jurisdiction: Ancillary services, Information to be provided to the rated entity, Information to be provided by the rated entity.

The ratings have been communicated to the rated entity or its designated agent(s) and issued without modification resulting from such communication.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

At least one ESG consideration was material to the announced credit rating metric(s) described above.

The worldwide credit rating on this credit rating announcement was issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Rodrigo Marimon Bernales
Analyst
Financial Institutions Group
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Ceres Lisbon
Associate General Manager
Financial Institutions Group
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Customer service: 1 212 553 1653

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