OREANDA-NEWS. S&P Global Ratings today said it placed its 'B+' long-term and 'B' short-term issuer credit ratings on Banco Agricola on CreditWatch with negative implications.

The CreditWatch placement follows our similar rating action on El Salvador (please see "El Salvador 'B+/B' Ratings Placed On CreditWatch Negative Based On Heightened Political Polarization On Fiscal Policy And Access To Liquidity," published Oct. 6, 2016, on RatingsDirect). Currently, the issuer credit rating on Banco Agricola is limited by the foreign-currency rating on El Salvador. In this sense, the ratings continue to move in tandem with those of the sovereign.

"Our issuer credit ratings on Banco Agricola continue to reflect its strong business position, based on its leading position in El Salvador's banking industry, and its adequate capital and earnings as a result of our forecasted risk-adjusted capital ratio of about 8% for the next two years," said S&P Global Ratings credit analyst Gabriela Langarica.

The ratings are also based on our assessment of the bank's adequate risk position, due to its stable asset quality metrics, and on average funding and adequate liquidity as a result of a stable and pulverized deposit base. The bank's stand-alone credit profile remains at 'bb+', reflecting the bank's strength on a stand-alone basis. The entity remains as a core entity to its ultimate parent, Bancolombia S. A. y Companias Subordinadas (BBB-/Neg/A-3).

The CreditWatch placement of our ratings on Banco Agricola reflects that of the sovereign. This is because we rarely rate financial institutions above the sovereign long-term rating because, during sovereign stress, the latter's regulatory and supervisory powers may restrict a bank's or financial system's flexibility, and because banks are affected by many of the same economic factors that cause sovereign stress. El Salvador's failure to agree upon fiscal and other reforms that help stabilize its government's access to liquidity, contain the recent growth in its debt burden, and boost investor confidence could lead to a downgrade. Hence a negative sovereign rating action on El Salvador will cause us to downgrade Banco Agricola.

Conversely, El Salvador ratings could stabilize if successful negotiations result in stronger fiscal policy, progress toward pension reform, and steps to address concerns about debt management.

We expect to resolve to resolve the CreditWatch placement before the end of the year.