Fitch Ratings, one of the world’s leading credit rating agencies, has recently affirmed Banco Financiera Comercial Hondureña, S.A. (Ficohsa) at ‘A+(hnd)’, with a stable outlook. This rating reflects Ficohsa’s financial strength and consistent performance in the Honduran market.

Key rating factors

Size and market relevance

Ficohsa is the largest bank in terms of assets and the second largest in terms of loans and deposits in Honduras. Its relevant franchise size gives it a significant competitive advantage in the market. In addition, its business model focuses on corporate and commercial banking, which has resulted in consistent total operating revenues of USD 310 million over the past four years.

Loan portfolio quality

Although Ficohsa’s past-due portfolio ratio increased slightly to 2.1% in September 2023, compared to 1.3% in December 2022, it remains consistent with its ratings. This increase is mainly due to higher exposure in the personal segment. However, Ficohsa has managed to maintain a controlled level of risk thanks to its focus on clients with a conservative risk profile.

Concentration risk mitigated

Ficohsa faces concentration risk due to the fact that its 20 largest debtors represent 3.4 times the capital base according to Fitch. However, this risk is partially mitigated by the moderate proportion of collateral-backed loans, which represent 49% of the total portfolio. Fitch estimates that Ficohsa will maintain a level of non-performing loans similar to that reported in September 2023.

Stable profitability

Despite a slight decline in profitability as measured by the ratio of operating income to risk-weighted assets (RWA) to 1.7% in September 2023, Ficohsa has managed to maintain stable profitability compared to the 2019-2022 average. The bank’s profitability is expected to remain around 1.7% in the near future.

Adequate capitalization

Ficohsa maintains satisfactory levels of capitalization, albeit experiencing a slight decline in September 2023 when compared to 2022. Fitch’s ratio of base capital to risk-weighted assets (RWA) stood at 8.7% in September 2023, surpassing Fitch’s 8% downgrade threshold. This reinforces the stable rating outlook for Ficohsa.

Deposit-based funding

Ficohsa benefits from a broad deposit base, which provides a stable source of funding. The weight of deposits in total funding has increased to 76.7% in September 2023, compared to 68.4% in 2021. However, the loans-to-deposits ratio weakened slightly to 97.7% in September 2023, reflecting the rapid growth of the loan portfolio compared to deposits. Fitch expects these levels to be maintained in the future, given the bank’s expected growth. In addition to deposits, Ficohsa is also funded through credit lines, bond issuance programs in the local market, and subordinated debt.