KBRA Upgrades Ratings for Oriental Bank

12 Jan 2024   |   New York


KBRA upgrades the deposit and senior unsecured debt ratings to BBB+ from BBB and affirms the short-term deposit and debt ratings of K2 for Oriental Bank ("the bank"). Oriental Bank is a wholly-owned subsidiary of Oriental Financial Group (NYSE: “OFG” or “the company”), a financial holding company domiciled in Puerto Rico (“PR” or “the Commonwealth”). The Outlook for all long-term ratings is revised to Stable from Positive in conjunction with the rating upgrade.

The key driver to the ratings remains tied to the ongoing economic recovery in PR, driven by the continued inflow of federal funds (primarily related to natural disasters), the preponderance of which have been invested in (and remain targeted toward) long-term growth and infrastructure projects. In 2023, unemployment in PR touched a cyclical, multi-year low. Also, the expansion of the Child Tax Credit to Puerto Rican families (beginning in 2021) has strengthened household finances, bolstered consumer spending, and introduced more citizenry into the banking system, all further buoying the local economy. (Because of the relatively low level of household income in PR, various forms of financial aid (e.g., expanded child tax credit) has a more dramatic impact as compared to in the U.S.).

Management’s stewardship of the bank in a period of substantial unforeseen and severe natural disasters, as well as the COVID era disruptions and economic dislocation caused by the Commonwealth’s debt default in 2016, also support the ratings.

KBRA expects that consolidated regulatory capital will continue to be managed prudently – currently at levels markedly more than peer levels – in the context of an uncertain interest rate environment and considering continued, steady growth in the U.S. based commercial loan portfolio, which has not been tested by a traditional, realized cyclical economic downturn.

Loan quality performance measures remain healthy, in a historical context, with the NPA and NCO ratios skewed to the lower end of the ranges reported in the past few years, and well below the periods surrounding and following the Commonwealth’s fiscal crisis.

Bottom line earnings performance continues to be robust, hinged to management’s disciplined risk-adjusted pricing of consumer loan portfolios, and moderate cost of funds, aided by its sturdy base on noninterest-bearing deposits, and limited reliance on higher cost and potentially more volatile sources of funding.

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Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

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