OREANDA-NEWS. S&P Global Ratings affirmed its 'BBB-' issuer credit rating on Banco Agropecuario S. A. (Agrobanco). The bank's stand-alone credit profile (SACP) remains 'bb+'. The outlook was revised to stable from negative.

The outlook revision follows a similar action on the economic risk trend of the BICRA on Peru. We believe that the country's economic imbalances stabilized as credit growth has remained steady in 2016 and property prices have softened, whereas economic growth prospects are improving. The diminished economic imbalances are tempered by Peru's greater external vulnerability in 2015 given that the country shifted to a net debtor position from a net asset one (for more details, please see "Banking Industry Country Risk Assessment: Peru," Sept. 2, 2016). Under this scenario, we project Agrobanco's RAC ratio to remain at very strong levels of about 21% for the next 18 months, incorporating capital infusions from the government.

The bank's SACP is based on Agrobanco's moderate business with greater scale and penetration in the agricultural sector for the past three years but still less diversified than other universal multipurpose banks; very strong capital and earnings supported by several capital injections from the government in recent years; weak risk position based on higher concentration in the cyclical agribusiness than the domestic financial system; average funding; and adequate liquidity.

The ratings on Agrobanco reflect its SACP and our view of a moderately high likelihood of government support, according to our criteria for government-related entities, which adds one notch of support in the final issuer credit rating on the bank. Our view of the likelihood of support is based on Agrobanco's:Limited important role for the Republic of Peru (local currency: A-/Stable/A-2; foreign currency: BBB+/Stable/A-2). Agrobanco is a development bank that primarily lends to the agricultural sector. Because of its still small market share and limited operating history, we believe that its financial stress or default won't harm the economy. On the other hand, Agrobanco is increasing its share of the sector and we believe its role as part of the government's public policies is expanding Very strong link to the government, which owns 100% of Agrobanco through El Fondo Nacional de Financiamiento de la Actividad Empresarial del Estado (FONAFE), a government-controlled entity that regulates and directs the government's corporate activities and equity investments. We expect FONAFE to remain the bank's majority owner and to provide support through capital injections if required. Our assessment also reflects the government's extended track record of support to the bank and our expectation that the new administration will continue to provide support, as already been signaled to the market.