NEW YORK--(BUSINESS WIRE)--Fitch Ratings has today upgraded Banco de la Produccion, S.A. y Subsidiarias' (Produbanco) long term Issuer Default Rating (IDR) to 'B' from 'B-' and its Viability Rating (VR) to 'b' from 'b-', while all other ratings have been affirmed. The Rating Outlook is Stable. A full list of rating actions follows at the end of this press release.

KEY RATING DRIVERS - IDRs, VR and Support Ratings

This positive rating action follows Fitch's recent upgrade of Ecuador's Long-Term Ratings and Country Ceiling to 'B' from 'B-'.

Produbanco's VR drives its long-term IDR. The bank's VR balances its strong franchise, experienced management, good asset quality, and solid liquidity, with its moderate loan and investment concentration and decreasing capital ratios. On a stand-alone basis, Produbanco's profile continues to compare favorably with international peers (emerging market commercial banks rated 'b-', 'b' or 'b+'). However, Ecuador's political and regulatory uncertainties continue to weigh on the bank's ratings. The Stable Outlook reflects Fitch's view that it does not foresee changes in the bank's credit profile or in its operating environment.

Despite having the fourth largest deposit market share, Fitch believes Produbanco cannot rely on government support, should it be necessary, given Ecuador's limited financing flexibility and the lack of a lender of last resort, underpinning both the bank's support rating of '5' and support floor rating of 'NF'.

Produbanco's asset quality compares favorably with both the domestic industry average as well as similarly rated international peers. Its non-performing loans to total loans ratio (calculated under local guidelines) is relatively low despite recent deterioration as a result of the bank's increased participation in retail segments, whose parameters are more stringent (i.e. loans are considered non performing after 15 days overdue). In turn, loan loss reserve coverage of impaired loans is ample and higher than that of comparable banks.

In Fitch's opinion, Produbanco maintains solid liquidity ratios and benefits from a stable and diversified deposits base that provides most of its funding. Liquidity coverage of deposits is also ample and compares favorably with domestic and international peers.

Profitability ratios decreased due to changes in the operating environment, including bank resolutions that curbed fee and commission income, as well as increased taxes and contributions. A deceleration of retail credit growth over the first half of 2013 has also affected profitability ratios. In addition to the changes in the operating environment, Produbanco's strategy has also required investments in technology and infrastructure that have constrained the bank's planned improvements in its operating efficiency.

Decreasing profitability has affected Produbanco's capital ratios. The bank's Fitch core capital to weighted risks ratio declined to 10% at end-June 2013, as internal capital generation was surpassed by asset growth. According to Fitch's projections, capital ratios will remain under pressure in the near term despite the bank's moderate asset growth projections for the remainder of 2013.

RATING SENSITIVITIES - IDRs AND VR

Produbanco's rating has limited upgrade potential. The long-term IDR is at the same level of Ecuador's sovereign, recently upgraded to 'B'.

Produbanco's ratings could be negatively affected if government intervention continues to undermine the bank's financial performance, causing its operating profit/average total assets ratio to fall below 0.5%, and/or its Fitch core capital/weighted risks ratio to fall below 9%.

RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR

Changes to the support rating and SRF would reflect a change in Fitch's view of the Government's willingness to support the bank, if this was needed.

Fitch has taken the following rating actions on Produbanco:

--Foreign currency long-term IDR upgraded to 'B' from 'B-'; Outlook Stable;

--Foreign currency short-term IDR affirmed at 'B';

--Viability rating upgraded to 'b' from 'b-';

--Support rating affirmed at '5';

--Support Floor affirmed at 'NF'.

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

Applicable Criteria and Related Research:

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

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=806283

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