Risk rating firm Moody’s lowered BCR’s base credit rating to B1 on Wednesday. Previously it was located in BA3.
Despite this, the ratings agency confirmed the long-term local currency deposit ratings and unsecured foreign currency ratings at Ba2, as well as Ba3’s long-term foreign currency deposit rating. The outlook of all the ratings remains negative.
The rating agency explained that the short-term downgrade reflects the deepening concerns about corporate governance following the arrests of the bank’s manager, interim manager and members of the credit committee on November 3rd.
The preventive arrests are related to accusations of alleged embezzlement of public funds.
Moody’s believes that these arrests increase weaknesses in corporate governance and will impair the bank’s ability to generate new business,”
said the firm in a statement.
Despite this, the rating agency highlighted that BCR’s deposits and senior obligations have an explicit sovereign guarantee, which protects the bank’s financing from short-term refinancing risks in times of stress.
The firm also believes that loan growth will remain more restricted as the new interim administration focuses on strengthening corporate governance rather than increasing the portfolio.
Therefore, the already modest performance of the BCR can be further weakened.
In addition, the risks of the assets in BCR may increase as the investigations are developed. In fact, the Superintendence of Financial Institutions of Costa Rica (Sugef) has already demanded that the bank review the internal classifications of specific credit exposures, which would further erode profits.