Fitch reviews ratings in Costa Rica

Ratings agency analyzes its clients’ strength in the face of tightened interbank credit.

Fitch Central America reaffirmed its national risk rating for the state-owned Banco de Costa Rica (BCR), giving it a Long-term rating of AA+(cri) and a Short-term rating of F1+(cri) with a Stable outlook.

According the Fitch report, "The ratings awarded to BCR are supported by the explicit guarantees of the Costa Rican government. They also take into account its strong franchise, solid financial condition, and excellent quality of assets. These are limited by important market risks."

Fitch also assigned a rating of AA+(cri) to BCR's Program for Issuing Standard Bonds, Series A and B, and a rating of F1+(cri) to its Program for Issuing Commercial Paper, Series A and B.

BCR’s financial performance has generally been good and has remained stable recently. As of September of 2008 the bank's profit on assets was 1.6 percent, and on capital was 14.7 percent.

The high quality of its outstanding credit is one of BCR’s greatest strengths. It has set cautious limits for past due loans (payment delayed more than 90 days), which may account for no more than 0.9 percent of its total portfolio. Last September, the bank’s past due loans made up 0.7 percent of the total.

"At present, Fitch does not see any risks relating to the bank’s liquidity position," the report adds.

Fitch notes that in the last few years, BCR has maintained a reasonable capital position, which suffered a brief decline in September of 2008. However, in December, the Costa Rican government announced a capital infusion of $50 million, equal to 13% of the bank’s capital at that time. This considerably strengthened BCR’s ability to absorb losses and expand loans in 2009.

On the other hand, Fitch warned about risks that confront ILG Corporation and its subsidiaries. ILG held onto its A+(cri) rating, but with an outlook of Negative.

Fitch explained that the changed outlook resulted from the current economic climate, including a slowdown of international commerce and more difficult credit conditions. In Fitch’s opinion, these will put pressure on ILG’s performance and could lower its credit indicators in 2009.

Through its subsidiaries, ILG offers a package of services that includes everything needed to move merchandise from its place of origin into merchants' hands.

"Although the activities of its subsidiaries are complementary and provide an integrated service, each one can generate revenue independently. This is a strength, given the competitive atmosphere in which ILG operates," said Fitch.

Sales for ILG’s main subsidiaries are relatively concentrated with some regional clients, representing 36 percent of total revenue. Losing some of those clients could significantly impact those subsidiaries. Currently, 18 percent of subsidiary revenue is generated outside of Costa Rica, but this still represents only four percent of the company's gross income.

ILG’s growth in recent years has negatively affected its generation of working capital and has increased its use of bank credit for financing. This means that any decline in the ability to service this debt could adversely affect its ratings.

ILG is a holding company for a group of firms that provide services related to foreign trade and logistics. Working in one of the Costa Rican economy’s most dynamic sectors (foreign trade) with fully integrated subsidiaries has helped ILG achieve significant annual growth since 2002.

The company's revenue is diversified by type of service. At the end of 2008, warehousing provided 29 percent of accumulated revenue, transportation services 26 percent, representation of shipping companies 17 percent, customs services 14 percent, and stowage 12 percent.