April 26, 2013 at 14:43 PM EDT
Fitch Affirms Nuevo Banco Comercial S.A.'s Ratings

Fitch Ratings has affirmed Nuevo Banco Comercial S.A.'s Foreign Currency Issuer Default Rating (IDR) at 'BBB+' and Local Currency IDR at 'A+'. The Rating Outlook is Stable. A full list of rating actions is at the end of this press release.

RATING ACTION RATIONALE

Nuevo Banco Comercial S.A.'s (NBC) IDRs and National Long-term ratings reflect the potential support from The Bank of Nova Scotia (BNS), which holds 100% of the bank's equity, with a FC IDR ('AA-') higher than the Country Ceiling. NBC's foreign currency IDR is at the country ceiling, while its local currency IDR is two notches above that of the Uruguayan sovereign.

Fitch affirmed support rating at 2 given that NBC is considered a strategically important subsidiary of BNS, as it is part of BNS's business plan for Latin America and its potential long term growth in Uruguay. Also, NBC benefit from a complete integration to BNS business policies and strong franchise, although they don't share the same brand name yet. So NBC would be expected to receive timely support from its parent, if required.

NBC's viability ratings reflect its strong national franchise, good asset quality, high liquidity, limited solvency ratios and its low profitability.

RATING SENSITIVITIES

NBC's FC IDR is currently constrained by Uruguay's Country Ceiling while its LC IDR is two notches above the local currency sovereign ratings, further upgrades will be contingent to positive changes in the sovereign rating. Also, negative changes on the sovereign rating or a change on the capacity and willingness to provide support from BNS may affect NBC's ratings, currently a scenario of very low probability.

The Outlook on the National long-term rating remains Stable.

CREDIT PROFILE

NBC's performance slightly improved during 2012 underpinned by loan growth, greater non-interest operating income and lower loan impairment charges, that offset an unexpected increase on NBC's expenses due to Central Bank of Uruguay's (BCU) requirement to account as Non-Interest Expenses its premium paid over stock of acquired loans (USD14 millions). NBC's profitability is still limited (ROAA 0.99% at YE12), although with a positive trend (1.07% at 1Q13).

Fitch expects NBC's operating performance to improve in line with the expected increase in lending volumes, higher cross selling and improvements in cost efficiency. In addition, Scotiabank's policy to centrally hedge the foreign exchange positions stemming from its investment in subsidiaries enabled NBC to close its historically open USD position and this will mean lower volatility on its income statement.

NBC's asset quality is good and its ratios have improved. Only 2.75% of the loan book is past-due (60 days or more overdue, under local definitions). Loan loss reserves covered 3.89% of total loans and 152.14% of past-due loans at YE12, which is considered adequate.

NBC's funding is mainly through deposits; liquidity continues to be at comfortable level with a gradual downward trend due to high rate of loan growth in the last two fiscal years. Liquid assets represent 35% of deposits and short-term funds at YE12. Despite the short-term nature of its funding, ample liquidity levels, the support of its parent and its relatively short-term loan portfolio helps to mitigate the structural maturity mismatch of the bank.

NBC's capitalization has decreased after the redemption of preferred shares previously held by Uruguay's Central Bank (BCU) and limited bank's profitability in 2012. The bank's equity to assets ratio came down to 6.58% of assets and its Fitch Core Capital (FCC) ratio to 7.97% at YE12; mostly explained by the aforementioned redemption of the preference shares. Fitch considers NBC's FCC tight and will monitor its evolution in the context of the bank's expansion plan. However, Fitch considers the ability and willingness of Scotiabank to support their subsidiaries in case were necessary.

NBC is the fourth-largest private sector bank in Uruguay and its market presence is significant in all segments.

Fitch has taken the following rating actions on Nuevo Banco Comercial S.A.:

--Foreign currency Issuer Default Rating (IDR) affirmed at 'BBB+'; Outlook Stable;

--Local currency IDR affirmed at 'A-'; Outlook Stable;

--Support rating affirmed at 2;

--National long-term rating affirmed at 'AAA(uy)'; Outlook Stable;

--Viability Rating affirmed at 'bb-'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria', Aug. 15, 2012;

--'National Ratings Criteria', Jan. 19, 2011.

Applicable Criteria and Related Research

Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885

Additional Disclosure

Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=789716

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts:

Fitch Ratings
Primary Analyst
Dario Logiodice, +54-11-5235-8136
Associate Director
Fitch Argentina Calificadora de Riesgo S.A.
Sarmiento 663 - piso 7 - C1041AAM
Buenos Aires, Argentina
or
Secondary Analyst
Santiago Gallo, +54-11-5235-8137
Director
or
Committee Chairperson
Franklin Santarelli, +1-212-908-0739
Managing Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com
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