Fitch: Promerica Financial Corporation (PFC) Acquires Majority Stake in Produbanco

Fitch Ratings continues to monitor the potential effect of the imminent merger of Banco de la Produccion, S. A. (Produbanco), rated 'B' with a Stable Outlook, and Banco Promerica Ecuador (Promerica, not rated by Fitch), with the former as the prevailing institution. The merger follows the acquisition of a 56% stake in Produbanco by Promerica Financial Corporation (PFC).

After PFC's formal intent to purchase a majority stake in Produbanco was authorized by the Ecuadorian Superintendence of Market Power Control in March 2014, the transaction was completed at the Guayaquil Stock Exchange on March 12, 2014, when PFC received and paid 108.6 million shares, at a price of USD1.20 per share, according to Diario El Comercio. The acquisition was followed by the resignation of Produbanco's President Abelardo Pachano. Fitch expects further changes in the board of directors and management team, but these have not been disclosed. The agency is monitoring the process and expects more detailed information as soon as possible.

In Fitch's opinion, based on a preliminary analysis of the financial effect of the merger, the merged bank would have more than USD4,000 million in assets and a loan portfolio of more than USD2,000 million. Promerica's asset quality and capital ratios compare negatively with Produbanco's; however, the relative size of Promerica's balance sheet minimizes their impact on the merged institution. Promerica accounted for 25% of Produbanco's assets as of December 2013.

Fitch believes Produbanco's franchise will remain strong in the local market and its asset quality will remain consistent with its rating category. Capitalization levels may be challenged by the possible costs of the merger. Changes in the bank's risk profile could affect its ratings, as Produbanco's ratings are driven by its Viability Rating and the Issuer Default Ratings (long-term foreign currency IDR of 'B' and short-term IDR of 'B') do not take into account any institutional or government support.

PFC is a Central American financial holding company based in Panama. PFC has market presence in Ecuador, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Dominican Republic, and Cayman Islands. After the purchase, the group's assets will add up to USD9,500 million, according to public sources.

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

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

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