Global Bank Corp. y Subsidiarias

Global Bank Corp. y Subsidiarias

Primary Credit Analyst:

Alejandro Peniche, Mexico City + 52 55 5081 2874; [email protected]

Secondary Contact:

Ricardo Grisi, Mexico City + 52 55 5081 4494; [email protected]

Table Of Contents

Credit Highlights

Outlook

Key Metrics

Anchor:'bbb-' For Banks Operating Solely In Panama

Business Position: An Important Player In The Panamanian Banking

Industry

Capital And Earnings: Lending Contraction And New Hybrid Capital

Slightly Improved Global Bank's Capital Base

Risk Position: Worsening But Still Manageable Asset Quality Metrics As

Deferral Programs Come Are Phased Out

Funding And Liquidity: Market Debt Continues To Complement A

Deposit-Based Funding Structure With Ample Liquidity

Environmental, Social, And Governance (ESG)

Key Statistics

Related Criteria

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 1, 2021 1


SACP bbb-

Anchor bbb-

Business

PositionAdequate 0

Capital and

EarningsAdequate 0

Risk Position Adequate 0

Funding Average

0

Liquidity Adequate

+ Support 0

ALACSupport 0

GRE Support 0

GroupSupport 0

SovereignSupport 0

+AdditionalFactors 0

Issuer Credit Rating

BBB-/Stable/A-3

Credit Highlights

Key strengths Key risks

A resilient customer base that provides business stability, which

helped the bank navigate the pandemic.

Capitalization levels currently under slight pressure stemming from the

negative trend in Panama BICRA's economic risk.

Solid liquidity levels that provide additional financial flexibility. High levels of deferred loans pose uncertainties for the bank's asset quality.

A solid market position in Panama in the corporate and

commercial lending segments.

Profitability will remain depressed given high loan-loss reserves.

We forecast that Global Bank Corp. y Subsidiarias' (Global Bank's) asset quality metrics will deteriorate over the

coming months as deferral programs are phased out in Panama. The long-lasting effects of the pandemic have taken

toll on the bank's asset quality metrics, increasing its nonperforming asset (NPA) levels by nearly 95 basis points (bps)

as of June 2020. However, the bulk of the borrower relief programs will end shortly and could generate further

delinquencies in Global Bank's portfolio. We believe that the deterioration will continue during its fiscal years of 2021

and 2022 and gradually recede towards December 2022.

We expect Global Bank's capital base to be resilient, despite slight pressures stemming from the negative trend in

BICRA's economic risk. Global Bank's capital base strengthened during the past 12 months because of a contraction

of its loan portfolio and the addition of perpetual hybrid notes, which increased its total adjusted capital (TAC). On the

other hand, if the negative trend in BICRA's economic risk materializes, it would reduce Global Bank's risk-adjusted

capital (RAC) ratio by about 100 basis points (bps). In this sense, the RAC ratio would remain slightly above our

threshold for its current assessment of the bank's capital earnings.

We expect Global Bank to repay its upcoming maturity without affecting its financial flexibility and liquidity. During

the second half of 2021, Global bank has an upcoming maturity of $700 million. The bank will take advantage of

greater liquidity--resulting from the pandemic containment strategies and the depressed loan portfolio growth coupled

with high availability from banking lines to repay this maturity without the need of refinancing.


Global Bank remains an important player in the Panamanian banking segment with a diversified loan portfolio in terms

of clients and products. The bank is the third-largest commercial bank in Panama, in terms of assets and deposits,

offering a wide variety of products across multiple lending segments. In this sense, Global Bank has no material

concentrations in terms of asset class and has a well-established balance between retail, mortgage, and commercial

loans.

Outlook: Stable

The stable outlook on Global Bank for the next 24 months incorporates our belief that the bank will maintain its

RAC ratio above 7% despite the potential materialization of the negative trend in BICRA's economic risk for

Panama. The outlook also incorporates our belief that asset quality metrics will deteriorate but will remain

manageable as the loan forbearance programs are withdrawn. Finally, we consider that the bank will maintain

liquidity levels above 2x while maintaining a solid funding profile, primarily consisting of deposits.

Downside scenario

We could lower the ratings in the next 24 months if Global Bank's consolidated RAC ratio consistently drops below

7%. This could happen if the negative trend in Panama's BICRA's economic risk materializes and the asset quality

deteriorates beyond our expectations, forcing the bank to increase its loan-loss reserves, hurting its internal capital

generation. Additionally, we could lower the ratings if asset quality weaken beyond our expectations and are no

longer in line with the average of the of the Panamanian banks.

Upside scenario

We consider that given the recession stemming from the pandemic and the pressures on BICRA's economic risk,

an upgrade of Global Bank in the next 24 months is unlikely.

Key Metrics

Global Bank Corp. y Subsidiarias--Key Ratios And Forecasts

--Fiscal year ended June 30--

(%) 2019a 2020a 2021f 2022f 2023f

Growth in operating revenue 9.8 9.8 0.8-1.0 2.7-3.3 4.3-5.3

Growth in customer loans 27.8 (0.9) (2.7)-(3.3) 2.5-3.5 3.0-4.0

Growth in total assets 28.4 1.1 (1.5)-(2.0) 0.5-1 2.0-3.0

Net interest income/average earning assets (NIM) 2.2 2.3 2.2-2.3 2.3-2.4 2.3-2.4

Cost to income ratio 64.3 56.2 55.0-56.0 56.0-57.0 55.5-56.5

Return on equity 6.6 5.4 3.0-3.5 5.5-6.0 6.5-7.5

Return on assets 0.6 0.5 0.3-0.4 0.5-0.6 0.6-0.7

New loan loss provisions/average customer loans 0.5 1.0 1.4-1.5 0.8-0.9 0.7-0.8

Gross nonperforming assets/customer loans 2.0 2.0 3.3-3.6 3.4-3.7 3.0-3.3

Net charge-offs/average customer loans 0.2 0.5 0.5-0.7 0.9-1.1 0.5-0.7

All figures are S&P Global Ratings-adjusted. a--Actual. f--Forecast.



Anchor:'bbb-' For Banks Operating Solely In Panama

Challenging operating conditions in the country could result in wider-than-expected credit losses, which could hamper

Panamanian banks' asset quality, profitability, and capitalization in the next two years. Despite the government

measures to offset the impact of social-distancing measures, a longer-than-expected lockdown has significantly hurt

Panama's economy. In 2021, Panama's GDP is likely to expand 7%, given that it's a service-oriented economy. The

unemployment rate also increased sharply during 2020, which could also take a toll on banks' asset quality. As a result,

lending could contract about 1% in 2020 and gradually recover during the next two years. We expect credit losses to

peak at 1.8% and nonperforming assets (NPAs) at 3.7% in 2021 from 0.9% and 1.9% during 2019, respectively. In our

view, all these factors could hurt the country's payment capacity, raising the credit risk in the economy.

The country's financial regulation continues to improve, reducing the gap with international regulators, although

implementation challenges remain. The Financial Action Task Force (FATF) placed Panama back on its "grey list" of

countries for legal and regulatory shortcomings related to insufficient preventative measures against money laundering

and financing terrorism. Additionally, in 2020, the EU added Panama to its blacklist of uncooperative jurisdiction in

terms of tax transparency and financial information. The FATF and EU's decisions haven't damaged economic growth,

investment in the country, or had any effect on the financial system so far, in our view. Moreover, banks have

maintained wide access to external financing.

Business Position: An Important Player In The Panamanian Banking Industry

We expect Global Bank to maintain its market share while it emphasizes efforts into post-pandemic recoveries. Global

Bank continues to be an important player in the Panamanian banking segment. The bank is the third-largest

commercial bank in Panama, with market shares of 8.5% and 4.5% in terms of assets and deposits, respectively. For

the next year, we expect these market shares to remain stable as the bank focuses on maintaining the asset quality in

check with minor growth efforts to increase lending—similar to its main peers--particularly in the mortgage and

commercial lending segments.

Global Bank's operating revenues have proven resilient from the pandemic-triggered economic downturn. We forecast

that the bank's operating revenue will remain flat for fiscal 2021 despite the pandemic effects. In this sense, as the

economic prospects improve and loan payments return to normal levels, we expect Global Bank's operating revenue

to resume growing in fiscal 2022 ending in June 2022. Additionally, the bank's digitalization strategy, which will

gradually improve efficiencies and increase its business volumes, will contribute to growth.



Chart 1

Capital And Earnings: Lending Contraction And New Hybrid Capital SlightlyImproved Global Bank's Capital Base

We forecast that the RAC ratio will marginally increase. During the second half of 2020, Global Bank took advantage

of low interest rates and strengthened its capital base through the issuance of $25 million perpetual bonds, which adds

up to its existing $136 million (which now accounts for nearly 22% of its TAC). Additionally, given the sluggish

prospects for loan growth, we forecast the bank's risk-weighted assets (RWAs) to contract close to 3% as of June 2021.

In this sense, we expect that the RAC ratio to be about 8.3% for the next 24 months. Finally, if the negative trend in

BICRA's economic risk materializes, it would reduce Global Bank's RAC ratio by about 100 bps, leaving the ratio

slightly above our threshold for our current assessment of the bank's capital and earnings.

We expect Global Bank's profitability to remain below the pre-pandemic levels because of higher loan-loss reserves

(LLRs). The bank's profitability dipped during 2020, given the conservative strategy to increase its LLRs. In this sense,

we forecast LLRs to be about $89 million in June 2021, nearly 40% higher than in the same period last year. This will

result in a projected net income nearly 40% lower and ROAA levels of 0.3% for fiscal 2021. For fiscal 2022, we forecast

better economic conditions that should help borrowers to make payments and increase Global Bank's fees and

commissions. The latter, coupled with lower LLR (although still higher than the pre-pandemic levels) will improve

profitability and ROAA (closer to 0.6%, slightly lower than the three-year average of 0.7%).



Chart 3

Risk Position: Worsening But Still Manageable Asset Quality Metrics AsDeferral Programs Come Are Phased Out

We expect Global Bank's loan portfolio to continue deteriorating as the effect of the forbearance programs takes a toll.

The debt moratorium that the bank implemented consisted mainly in payment deferrals of up to six months. Fifty five

percent of the bank's loans were under this program during 2020, but it dropped to 30% as of May 2021. In this sense,

even if asset quality metrics have weakened nearly 80 bps since the beginning of the pandemic, we forecast them to

increase later this year when payments on the bulk of deferred loans resume. Consequently, we forecast that NPAs will

continue increasing and reach 3.6% in June 2022. In this regard, we also expect credit losses to increase towards 1%

for 2022 from a three-year average of 0.3% as some borrowers won't be able to resume payments. We also expect a

gradual recovery during the second semester of 2022 that will begin improving the asset quality metrics closer to 3%.

The higher NPAs will cause coverage to drop 80%-100% during the next 12 months.

As loan portfolio resumes growth, we expect Global Bank to maintain its well diversified operations in terms of clients

and industries. The bank holds no particular concentrations in its commercial portfolio thanks to diversity among

corporate loans, which represent 50% of total loans, consisting of construction (19%), agribusiness (12%), factoring

(7%), overdrafts (5%), SMEs (2%), and other loans (5%). On the other hand, as of March 2021, its top 20 clients

represented only 13% of its total loan portfolio. Finally, we don't expect any major shifts in terms of exposures as the

bank will continue expanding lending in the same segments.



Chart 4

Funding And Liquidity: Market Debt Continues To Complement ADeposit-Based Funding Structure With Ample Liquidity

We expect deposits to continue to represent the bulk of funding. Global Bank's funding incorporates a higher

proportion of market debt than the average of the Panamanian banking system. In this sense, as of March 2021, the

bank's deposit base represented nearly 72% of its funding base, compared with 86% for the banking system. The rest

of the bank's funding base mainly consists of market debt and credit lines. The bank has an upcoming maturity in

October 2021 of $602 million, which accounts for 8.3% of its total funding base. However, Global Bank will take

advantage of its higher liquidity and available credit lines from multilateral lending agencies and commercial banks to

repay this maturity without the need for refinancing. This will change slightly the bank's non-deposit funding base

structure from market debt towards interbank funding lines, but it won't have major effect on the overall funding

profile.

We expect liquidity to remain sound and sufficient to cover any potential needs that could arise next year. The bank's

liquidity remained a priority during the crisis. Its sound liquidity coverage metric throughout last year stems from

highly liquid investment-grade securities and higher cash levels. In this sense, Global Bank always maintained its

liquidity coverage metric (LCM) above 2x, reaching 3.1x in June 2020, during which the pandemic crisis was at its

peak. As of March 2021, liquidity began to gradually decrease, and we expect this trend to continue--reaching the

historical levels of 2.0x.



Chart 5

Environmental, Social, And Governance (ESG)

We consider ESG factors for Global Bank to be broadly in line with those of the Panamanian banking industry. Global

Bank has engaged in the acquisition-based growth over the past years, as seen in the takeovers of Banvivienda and

AFP Progreso. We believe that management, along with the bank's corporate governance framework, was able to

integrate acquired assets without operating disruptions. In fact, Global Bank expanded its consumer lending segment,

enabling its loan portfolio to resemble closer the Panamanian banking industry average. Finally, social and

environmental factors, although relevant for the long-term strategy of the bank, don't have more influence on its credit

quality than for its peers.

Key Statistics

Table 1

Global Bank Corp. y Subsidiarias--Key Figures

--Year ended June 30--

(Mil. PAB) 2021* 2020 2019 2018 2017

Adjusted assets 8,373.7 8,424.1 8,328.2 6,538.5 6,608.2

Customer loans (gross) 6,055.7 6,324.4 6,384.2 4,997.2 5,117.4

Adjusted common equity 662.0 661.3 681.3 579.8 544.8

Operating revenues 177.9 232.9 212.1 193.2 208.0

Noninterest expenses 96.0 131.0 136.3 107.6 103.6

Core earnings 15.9 42.3 46.0 66.8 76.4

*Data as of March 31. PAB--Panamanian balboa.



Table 2

Global Bank Corp. y Subsidiarias--Business Position


(%) 2021* 2020 2019 2018 2017

Total revenues from business line (currency in millions) 177.9 232.9 212.1 193.2 208.0

Commercial & retail banking/total revenues from business line 89.4 93.1 95.1 95.0 100.0

Trading and sales income/total revenues from business line 4.1 (0.2) 0.4 1.2 N/A

Insurance activities/total revenues from business line 5.0 5.5 N/A N/A N/A

Other revenues/total revenues from business line 1.6 1.6 4.5 3.8 N/A

Investment banking/total revenues from business line 4.1 (0.2) 0.4 1.2 N/A

Return on average common equity 2.7 5.4 6.6 11.2 14.0

*Data as of March 31. N/A--Not applicable.

Table 3

Global Bank Corp. y Subsidiarias--Capital And Earnings


(%) 2021* 2020 2019 2018 2017

Tier 1 capital ratio 15.3 14.4 13.8 14.3 13.5

Adjusted common equity/total adjusted capital 80.5 82.8 84.2 83.4 82.9

Net interest income/operating revenues 74.7 75.9 73.6 74.7 73.9

Fee income/operating revenues 14.7 17.2 21.4 20.2 21.7

Market-sensitive income/operating revenues 4.1 (0.2) 0.4 1.2 0.9

Cost to income ratio 53.9 56.2 64.3 55.7 49.8

Preprovision operating income/average assets 1.3 1.2 1.0 1.3 1.6

Core earnings/average managed assets 0.2 0.5 0.6 1.0 1.2

*Data as of March 31. N/A--Not applicable. RAC--Risk adjusted capital.

Table 4

Global Bank Corp. y Subsidiarias--Risk Position


(%) 2021* 2020 2019 2018 2017

Growth in customer loans (5.7) (0.9) 27.8 (2.3) 7.9

Total diversification adjustment/S&P Global Ratings’ RWA before diversification N/A 34.1 36.5 37.6 N/A

Total managed assets/adjusted common equity (x) 12.8 12.9 12.4 11.3 12.2

New loan loss provisions/average customer loans 1.6 1.0 0.5 0.2 0.4

Net charge-offs/average customer loans 0.6 0.5 0.2 0.2 0.3

Gross nonperforming assets/customer loans + other real estate owned 3.0 2.0 2.0 1.8 1.3

Loan loss reserves/gross nonperforming assets 112.4 120.7 92.7 53.0 65.5

*Data as of March 31. N/A--Not applicable. RWA--Risk weighted assets.



Table 5

Global Bank Corp. y Subsidiarias--Funding And Liquidity


(%) 2021* 2020 2019 2018 2017

Core deposits/funding base 71.3 68.6 65.9 61.7 58.9

Customer loans (net)/customer deposits 111.8 121.0 129.7 142.5 149.1

Long-term funding ratio 94.0 95.2 93.4 91.7 89.6

Stable funding ratio 110.0 109.2 104.8 101.5 100.1

Short-term wholesale funding/funding base 6.7 5.3 7.3 9.4 11.6

Broad liquid assets/short-term wholesale funding (x) 2.8 3.1 2.0 1.6 1.3

Net broad liquid assets/short-term customer deposits 21.2 20.7 14.4 11.0 6.8

Short-term wholesale funding/total wholesale funding 21.5 16.0 20.4 23.3 27.0

*Data as of March 31.

Related Criteria

• General Criteria: Hybrid Capital: Methodology And Assumptions, July 1, 2019

• General Criteria: Group Rating Methodology, July 1, 2019

• Criteria | Financial Institutions | General: Risk-Adjusted Capital Framework Methodology, July 20, 2017

• General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017

• Criteria | Financial Institutions | Banks: Quantitative Metrics For Rating Banks Globally: Methodology And

Assumptions, July 17, 2013

• Criteria | Financial Institutions | Banks: Banks: Rating Methodology And Assumptions, Nov. 9, 2011

• Criteria | Financial Institutions | Banks: Banking Industry Country Risk Assessment Methodology And

Assumptions, Nov. 9, 2011

• Principles Of Credit Ratings, Feb. 16, 2011



Anchor Matrix

Industry

Risk

Economic Risk

1 2 3 4 5 6 7 8 9 10

1 a a a- bbb+ bbb+ bbb - - - -

2 a a- a- bbb+ bbb bbb bbb- - - -

3 a- a- bbb+ bbb+ bbb bbb- bbb- bb+ - -

4 bbb+ bbb+ bbb+ bbb bbb bbb- bb+ bb bb -

5 bbb+ bbb bbb bbb bbb- bbb- bb+ bb bb- b+

6 bbb bbb bbb- bbb- bbb- bb+ bb bb bb- b+

7 - bbb- bbb- bb+ bb+ bb bb bb- b+ b+

8 - - bb+ bb bb bb bb- bb- b+ b

9 - - - bb bb- bb- b+ b+ b+ b

10 - - - - b+ b+ b+ b b b-

Ratings Detail (As Of July 1, 2021)*


Issuer Credit Rating BBB-/Stable/A-3

Senior Unsecured BBB-

Issuer Credit Ratings History

22-Jun-2017 BBB-/Stable/A-3

28-Oct-2016 BBB-/Negative/A-3

18-Mar-2013 BBB-/Stable/A-3

Sovereign Rating

Panama BBB/Stable/A-2

*Unless otherwise noted, all ratings in this report are global scale ratings. S&P Global Ratings’ credit ratings on the global scale are comparable

across countries. S&P Global Ratings’ credit ratings on a national scale are relative to obligors or obligations within that specific country. Issue and

debt ratings could include debt guaranteed by another entity, and rated debt that an entity guarantees.




STANDARD & POOR’S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor’s Financial Services LLC.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminateits opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com(subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees isavailable at www.standardandpoors.com/usratingsfees.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result,certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain theconfidentiality of certain non-public information received in connection with each analytical process.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&Preserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of theassignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact.S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make anyinvestment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. TheContent should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when makinginvestment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information fromsources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publicationof a periodic update on a credit rating and related analyses.

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may bemodified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission ofStandard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-partyproviders, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness oravailability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the useof the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESSOR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOMFROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANYSOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive,special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused bynegligence) in connection with any use of the Content even if advised of the possibility of such damages.

Copyright © 2021 by Standard & Poor’s Financial Services LLC. All rights reserved.

Global Bank Corp. y Subsidiarias

Documents

Transcript of Global Bank Corp. y Subsidiarias