Colombia, January 15, 2025 – Fitch Ratings has affirmed Banco Davivienda S.A.’s Long-and Short-Term Local and Foreign Currency Issuer Default Ratings at ‘BB+’ and ‘B’, respectively. The rating outlook for the Long-Term IDRs is Stable. Fitch has also affirmed Banco Davivienda (Costa Rica), S.A.’s (Davivienda CR) Long- and Short-Term Local and Foreign Currency Issuer Default Ratings at ‘BB+’ and ‘B’, respectively, and its Shareholder Support Rating at ‘bb+’. The Rating Outlook for the Long-Term IDRs is Stable.
Fitch has placed Scotiabank Colpatria S.A.’s (SBC) Long-Term Foreign Currency and Local Currency IDRs of ‘BBB-‘ and ‘BBB’, respectively, its Shareholder Support Rating of ‘bbb-‘, and its local subordinated debt on rating watch negative. At the same time, Fitch affirmed the bank’s Viability Rating (VR) at ‘bb’, its national ratings, including the local senior unsecured debt, at ‘AAA(col)’ and ‘F1+(col)’, respectively.
The rating watch negative on SBC’s ratings reflects the potential credit implications due to anticipated changes in its shareholder structure. This is because, upon completion of the transaction, the expected main shareholder, Davivienda, would be rated lower than the current shareholder, The Bank of Nova Scotia (BNS) ‘AA-‘/ROS. Consequently, the Shareholder Support Rating, which drives the ratings, will be capped at Davivienda’s rating of ‘BB+’. Upon completion of the integration, Fitch expects SBC’s IDRs to converge toward those of Davivienda, which are in turn driven by the latter’s intrinsic credit profile as reflected in its own VR.
Fitch Ratings has also affirmed the Long- and Short-Term National Ratings of Scotiabank de Costa Rica, S.A. (Scotiabank CR) at ‘AAA(cri)’ and ‘F1+(cri)’, respectively. The Long-Term National Rating Outlook is Stable. At the same time, it affirmed the senior unsecured debt ratings at ‘AAA(cri)’.
These actions follow the Jan. 6, 2025 announcement that Davivienda has reached an agreement with BNS to integrate Scotiabank’s operations in Colombia, Costa Rica, and Panama into Davivienda. In exchange, Scotiabank will receive approximately 20% ownership stake in the new combined operations and participation on the Board of Directors. Simultaneously, BNS will purchase Grupo Mercantil Colpatria S.A.’s stake (44%) in SBC. This strategic move aims to consolidate their market position in Colombia and Central America and capitalize on synergies between Davivienda and BNS. The transaction is dependent on regulatory approval from authorities in Colombia, Costa Rica and Panama.
Upon completion of the non-cash agreement, Davivienda’s assets, liabilities, and equity are expected to grow by 40% while maintaining its capital position relatively stable without any goodwill generation. The strengthened market position in these three markets will enhance Davivienda’s footprint as a regional leader, while synergies from BNS will provide access to a broad global offering of financial solutions.
Fitch expects to resolve the rating watch negative on SBC upon closing of the transaction, which could take more than six months.
Key Rating Drivers: The affirmation of Davivienda’s ratings reflects Fitch’s expectation that this transaction will not negatively impact its operations or its strong business and financial profiles. Particularly, Fitch expects Capitalization core metric to be maintained above 10%, once the transaction is completed. Upside potential is limited due to challenges regarding the integration of bank operations and the significant efforts needed to normalize asset quality and profitability, mainly in Colombia, which remain contingent on its disciplined lending standards and pace of growth.
Strong Business Profile: Davivienda’s business profile is underpinned by its stable total operating income, strong market position in Colombia and leading franchise in Central America. Davivienda has a diversified business model, serving more than 24 million customers and offering a full suite of retail and commercial banking, as well as wealth management and capital market services. Fitch expects improvements in total operating income, efficiency and profitability, based on strengthened geographic diversification and synergies between the two entities once the integration of operations is completed.
Source: Fitch Ratings
Atlantic Investors Service 