KBRA Affirms Ratings for Banesco USA; Revises Outlook to Positive

KBRA affirms the deposit and senior unsecured debt ratings of BBB, the subordinated debt rating of BBB-, and the short-term deposit and debt ratings of K3 for Banesco USA (“Banesco” or “the bank”). The Outlook for all long-term ratings is revised to Positive from Stable.

Key Credit Considerations

The Positive Outlook reflects Banesco’s sustained improvement in earnings, highlighted by a 1.14% ROA, tracking above the rated peer average for 9M25. This performance is driven primarily by balance sheet growth supported by the ECIP program, which has enhanced scale and operating efficiency achieved through cost discipline with operating expenses reduced to 2.0%. Furthermore, the bank's efficiency ratio declined to 56% for 9M25, reflecting stronger operating leverage stemming from the expanded balance sheet. Additionally, looking at the fundamental outlook with the receipt of $250 million in perpetual preferred equity through the ECIP program in 2022, Banesco is currently evaluating options that would have a material positive impact on the bank's common equity ratios in the short term. Banesco remains committed to maintaining a solid capital position, including the CBLR above 10% (11.5% at 3Q25).

Overall healthy asset quality trends supported by strong credit culture continue to enhance profitability through lower credit costs (provisions for credit losses totaled $4.3 million through 9M25, or 0.1% of average assets). That said, although the recent uptick in the NPA ratio through 9M25 is at a level above historical credit trends, Banesco has demonstrated a long track record of low loss content supported by prudent underwriting standards with strong LTVs and DSCRs. The recent inflows in nonaccrual balances are viewed as idiosyncratic in nature, and these credits are proactively managed with the anticipation of positive workout resolutions resulting in the normalization of the NPA ratio in the near term. Banesco’s unique funding profile, which includes ~32% from international retail and corporate clients, with deposit rates closely tied to the movement in the fed funds rate, enables the bank to effectively reprice its deposit book, benefiting from the recent Fed rate cuts. The recent upward momentum in NIM, reflects a steady rise in average loan yields from the strong growth in higher yielding loans (YTD loan growth of 12%) despite the rate cuts combined with a meaningful decline in deposit costs, which stand at 2.54% compared with the rated peer average of 2.71%.

Rating Sensitivities

Given the Positive Outlook, an upgrade is possible over the medium term as we evaluate developments that would include a meaningful increase to core captial ratios. Furthermore, stabilization of asset quality with metrics more closely aligned with historical trends, as well as sustained profitability in line with higher-rated peers could result in a rating upgrade. Conversely, if profitability is weakened by higher-than-expected credit costs related to further credit deterioration, or capital levels fall below peers, negative rating action could result.

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