Fitch Affirms BICSA's Ratings at 'BB'

BICSA

--Long-term foreign currency Issuer Default Rating (IDR) 'BB';

--Short-term foreign currency rating 'B';

--Individual 'C/D';

--Support '3';

--National-scale long-term rating 'A+(pan)';

--National-scale short-term rating 'F1(pan)';

The Rating Outlook is Stable.

At the same time, Fitch has assigned an expected rating of 'BB' to an upcoming issue of senior unsecured debt for up to USD$100 million. This rating will be made final by Fitch upon receipt and revision of the final documentation, when Fitch also expects to assign a national-scale rating in Costa Rica to this issue.

BICSA's ratings reflect the commercial and operating support it receives from its main shareholder, Costa Rican government-owned Banco de Costa Rica (BCR, 51% ownership). The ratings also consider BICSA's adequate capitalization and risk management, as well as its high risk concentrations, modest (though improving) profitability, limited liquidity and tightened competition in its core business lines.

Increased competition has pressured the bank's margins and overall profitability, which was further exacerbated by some non-recurring costs in recent years. The confluence of well-contained operating costs and higher business volumes should benefit the bank's performance going forward, although most improvements will take some time before materially affecting earnings. Keeping credit costs under control is a key challenge. The bank is largely exposed to concentration risk, which is likely to remain unchanged. While the gradually improving risk management approach provides some comfort, the current level of reserves (0.7% of total loans at end-June 2007) is low in order to absorb further loan defaults. Liquidity is somewhat modest, as core deposits only provide a small fraction of total funding and customer deposits are highly concentrated. While the core capital-to-assets ratio is adequate (12.8% as of June 2007, mostly unencumbered), capital adequacy could be increasingly challenged if the bank's asset growth prospects materialize and such growth is not accompanied by improved and sustained internal capital generation. BICSA's Individual rating could be pressured if the expected asset growth results in weaker profitability, capital adequacy and/or liquidity, or if there are major failed loans or difficulties in sustaining recent performance improvements.

If required, Fitch believes that support to BICSA could be provided by its major shareholder, BCR (rated 'BB' by Fitch). BCR's ability to provide full and timely support could be limited by legal or political issues. BICSA does not benefit from the sovereign guarantee that Costa Rican state-owned banks have. Downside risk for the bank's long-term ratings would stem from the discontinuation of BCR's ability and/or willingness to provide support, which Fitch considers unlikely at present.

BICSA, established in Panama in 1976, specializes in wholesale banking. Its shareholders are the two largest Costa Rican banks, both being government-owned. It has an agency in Miami and representative offices in Guatemala, Nicaragua and El Salvador. The vast majority of its corporate business is carried out with Costa Rican customers. BICSA's core businesses are corporate banking (85% of total loans) and correspondent services (12%), though the latter has been gradually declining. While the bank intends to maintain its focus in these two segments, it also aims at further expanding funding provided by local customer deposits. The Miami office was required by the banking authorities in the U.S. to enhance its money-laundering prevention practices, while no material events have occurred in the bank's history. These actions and incurred costs have affected the operating performance of the agency. A deadline to meet these requirements was set before the end of 2007 and the bank has recently fulfilled every request.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, . Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.