Investing.com -- OFG Bancorp (NYSE: OFG )’s long-term issuer credit rating has been upgraded by S&P Global Ratings from ’B+’ to ’BB-’ on April 24, 2025. The rating of its operating subsidiary, Oriental Bank, has also been increased from ’BB’ to ’BB+’. The upgrades are a reflection of OFG’s steady performance, solid earnings, and prudent risk management. The outlook remains stable.
OFG Bancorp, the third-largest bank based in Puerto Rico, has shown consistent profitability and business stability, even amid varied operating conditions. The bank’s risk management, marked by credit tightening initiatives and sensible interest rate risk management, has contributed to its solid performance.
The bank’s Digital First strategy has led to improved digital products and capabilities, enhancing its competitive position and leading to customer acquisition. OFG, which has a higher exposure to consumer credit at over 40% of loans, has benefited from solid economic trends in Puerto Rico, with unemployment near historical lows.
The bank’s strong performance also reflects its solid profitability and earnings retention, leading to higher capital ratios that support organic loan growth. OFG has maintained stable funding and liquidity metrics, significantly improved from historical levels.
Despite potential risks from tariffs and trade uncertainty to the Puerto Rican and broader U.S. economy, OFG’s strong earnings base can sustain a sharp rise in provisioning. Its total loss-absorbing capacity (Tier 1 capital and reserves) of over 18% of loans provides a meaningful buffer against higher credit losses.
OFG is expected to maintain solid earnings, further supporting already strong capital ratios. The bank’s prudent investment of excess liquidity into securities at elevated interest rates in 2022 has benefited its earnings and capital. As of March 31, 2025, OFG had a common equity Tier 1 ratio of 14.27% and a tangible common equity-to-tangible assets ratio of 10.30%.
While asset quality metrics may deteriorate somewhat, OFG’s improved credit profile is expected to support loan performance. Nonperforming assets have significantly declined over the last decade, from over 9% of loans and other real estate owned to below 2%. This is due to OFG’s derisking of its portfolio, with its sales of nonperforming loans and tightened underwriting standards.
OFG’s funding and liquidity measures compare favorably to some mainland peers’. The bank has reduced its reliance on wholesale and brokered deposit funding to modest levels. Its deposit franchise in Puerto Rico has supported funding costs, which remain below those of most rated U.S. banks. On-balance-sheet liquidity is nearly 30% of total assets, and the bank is expected to maintain solid liquidity buffers.
The stable outlook reflects expectations that OFG will maintain strong earnings performance, robust capital levels, and adequate reserve coverage against potentially higher credit deterioration amid macroeconomic uncertainty. Continued federal relief funding is expected to aid economic conditions in Puerto Rico, benefiting OFG’s substantial consumer portfolio.
However, ratings could be lowered if the local economy weakens, financial aid declines materially, asset quality deteriorates more than expected, or capital ratios decline substantially below strong levels. Ratings could also be lowered if funding and liquidity measures materially weaken.
Ratings are unlikely to be raised in the next 12 months given the already appropriate peer comparisons. Over time, ratings could be raised if regional economic conditions further improve, revenue and geographic diversification increase meaningfully, and asset quality, financial performance, and funding and liquidity metrics align with those of higher-rated peers.
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