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Fitch: Performance Deterioration Expected for Venezuelan Banks in 2014

February 16, 2014

Some performance deterioration in 2014 is expected for Venezuelan banks due to severe macroeconomic imbalances, which will contribute to operating environment risks, according to a Fitch Ratings report.

'A seasoning of credit portfolios, following high nominal loan growth that has exceeded more than 40 percent on average over the past three years could also result in a deterioration of Venezuelan banks' credit metrics,' said Theresa Paiz Fredel, Senior Director, Financial Institutions. 'Further government regulations and intervention could create additional challenges.'

Nevertheless, absent a material increase in government intervention or a severe macroeconomic adjustment, bank financial metrics should remain well within the norm of similarly rated peers.

Venezuelan banks have a large, negative mismatch between short- term assets and liabilities, while funding greater than one year is limited. However, this position is manageable under Venezuela's current scheme of foreign exchange controls.

Weaker profitability and internal capital generation could pressure capital ratios in the short term if growth does not decelerate from current levels.

Asset quality ratios have been stable to improving as nominal gross loan growth, driven by high inflation, has significantly outpaced growth of restructured and impaired loans.

Many banks have been proactively increasing reserves for impaired loans in order to face current macroeconomic imbalances. Given unseasoned loan growth, however, an economic shock could easily reverse asset quality trends.

For more information, a special report titled 'Peer Review: Private Sector Venezuelan Banks' is available on the Fitch Ratings web site at fitchratings.com, or by clicking on the link.

Additional information is available on fitchratings.com

Applicable Criteria and Related Research:

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

--'National Scale Rating Criteria' (Oct. 30, 2013);

--'2014 Outlook: Andean Banks' (Dec. 16, 2013).

Applicable Criteria and Related Research: Peer Review: Private Sector Venezuelan Banks (Facing Macroeconomic Imbalances)

http://fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=733216

2014 Outlook. Andean Banks (Colombia, Ecuador, Peru and Venezuela)

http://fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=726275

National Scale Ratings Criteria

http://fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=720082

Global Financial Institutions Rating Criteria

http://fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=732397

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