Fitch Places Banco De Venezuela Rtgs on Rating Watch Evolving

Last update: 7:54 p.m. EDT Oct. 27, 2008

NEW YORK, Oct 27, 2008 (BUSINESS WIRE) -- Fitch Ratings has placed Banco de Venezuela's (BV) Issuer Default Rating (IDR) on Rating Watch Evolving, and taken other actions, as follows:

--Long-term foreign and local currency IDR 'B+', placed on Rating Watch Evolving;

--Short-term foreign and local currency rating affirmed at 'B';

--Individual affirmed at 'D';

--Support '5', placed on Rating Watch Positive;

--Support Floor Rating 'NF', placed on Rating Watch Positive;

--Long-term National rating affirmed at 'AA(ven)';

--Short-term National rating affirmed at 'F-1(ven)';

Ratings are placed on Rating Watch to notify investors that there is reasonable probability of a rating change and the likely direction of such change. Rating Watch Evolving status indicates that ratings may be raised, lowered or maintained. The resolution of the Rating Watch is contingent upon further details being provided regarding the announced negotiation between the Venezuelan government and BV's current major shareholder: Spain's Banco de Santander (Santander).

In August 2008 the government of Venezuela (LT FC IDR 'BB-' by Fitch) announced its intention to acquire BV, beginning negotiations with the current shareholder. At this point there is no meaningful information about the stage of the negotiations; nevertheless, should the Venezuelan government succeed with its intention, BV could benefit from the support of the government, because of the strategic position of the bank for government purposes and also its significant size on the market, which are the main drivers of such support. On the other hand a lengthy and/or unsuccessful negotiation process could hinder the bank franchise and thus its financial profile, triggering a downgrade.

BV's ratings reflect its strong franchise, competent risk management, sound overall financial profile and the operational support of Santander, its majority shareholder. BV's ratings are constrained by the negative effects of government intervention into the bank business and overall private-sector activities.

Despite the challenges of the operating environment, controlled credit and operating costs, together with an adequate net interest margin, results in above-average profitability ratios. For the 2005-2007 period, the bank's return on average assets ratio (ROAA) yielded an adequate 3.3%, similar to the result posted during the first half of 2008.

Thanks to vigorous loan demand and the bank's competitive loan origination techniques, BV's loan portfolio has grown significantly, while appropriate risk control tools have yielded good although slightly deteriorating asset quality ratios. At end-June 2008 the past due-to-gross-loans ratio increased to 1.3%, while loan loss reserves represented a tight 1.7% of the total portfolio.

Given the significant increase in assets and relatively high cash dividends, BV's capital ratios decreased in 2006, and since then have remained fairly stable. At end-June 2008 the equity-to-assets ratio stood at 8.85%, not substantially encumbered by fixed and foreclosed assets.

BV was Venezuela's third largest universal bank at end-June 2008 in terms of consolidated funds under management (assets plus investment funds) with a 9.7% market share. At end-June 2008, Santander had a 98% stake in BV.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.

SOURCE: Fitch Ratings