New York, October 30, 2017 -- Today, Moody's Investors Service affirmed the long and short-term
global local and foreign currency deposit ratings of B2 and Not Prime,
as well as the long-term foreign currency subordinated debt rating
of B3, assigned to Banco Bonsucesso S.A. (Bonsucesso).
At the same time, Moody's affirmed Bonsucesso's short term Brazilian
national scale rating of BR-4, its baseline credit assessment
(BCA) of b2, as well as its adjusted BCA of b2, and its long
and short -term counterparty risk assessments of B1(cr) and Not
prime(cr). The Brazilian national scale long-term deposit
rating was downgraded to Ba2.br from Ba1.br. The
outlook on the long-term local and foreign currency deposit ratings
, as well as the issuer outlook, was changed to negative.
The following ratings and assessments of Banco Bonsucesso S.A.
were affirmed:
- Long and short-term global local currency deposit rating
of B2, negative outlook and Not-Prime
- Long and short-term foreign currency deposit rating of
B2, negative outlook and Not-Prime
- Short term Brazilian national scale deposit rating of BR-4
- Subordinate debt rating of B3
- Baseline credit assessment of b2
- Adjusted baseline credit assessment of b2
- Long and short-term counterparty risk assessment of B1(cr)
and Not Prime(cr)
The following rating of Banco Bonsucesso S.A. was downgraded:
- Long-term Brazilian national scale deposit rating to Ba2.br
from Ba1.br
The issuer outlook of Banco Bonsucesso S.A. was changed
to negative from stable.
RATINGS RATIONALE
In affirming Bonsucesso's global scale ratings, Moody's
took into consideration the bank's ongoing franchise repositioning,
with a focus on judiciary loans (precatorios) and working capital loans
to small and mid-sized enterprises (SME), as well as its
successful inroads into niche fee-based businesses. Bonsucesso's
rapid growth in these asset classes and sizable borrower concentration,
however, indicate a larger probability of negative pressure on the
bank's financial fundamentals and on asset quality and capitalization,
in particular. These risks are also the key driver of the downgrade
of Bonsucesso's national scale rating to Ba2.br.
Bonsucesso has been in the process of overhauling its business strategy
after it concluded the transfer of its payroll lending operation to Banco
Ole Bonsucesso Consignado S.A. (BBC), a joint venture
(JV) created with Banco Santander (Brasil) S.A. (Ba1/Ba3,
ba2 negative) in 2015. As part of its repositioning , the
bank has actively expanded operations with judiciary bonds (precatorio),
where it advances financing to plaintiffs who have won claims against
federal, state and municipal governments, and then seeks payment
itself from these entities. The repayment probability, and
therefore, the recovery value of these claims tends to be high,
but settlement delays are possible. For Bonsucesso, precatorios
account for almost 60% of its total loan book, and almost
250% of its core capital. Bonsucesso is now required to
provision and allocate capital against these exposures following guidance
from the Central Bank, and the rating agency particularly notes
the bank's rapid growth of 91.2% of precatorio holdings
since December 2015.
At the same time, Bonsucesso has nearly doubled its SME loans in
the twelve months to June 2017, which combined with the high levels
of concentration in its precatorios portfolio add a significant degree
of asset risk. The bank's concentration levels are high on
both a regional basis, given its long operating history in Minas
Gerais, State of (B1, negative), as well as by its ten
largest borrowers that represent over 75% of total loans.
While the bank's problem loan ratio, which accounts for only
delayed installments of delinquent loans, was a low 0.4%
as of June 2017, the rapid pace of growth in a still weak economy
raises the risk of delinquencies. Moody's also notes that
net charge offs were 1.9% and renegotiations accounted for
a further 1.8% in June 2017.
The bank is also focused on increasing fee-based revenues,
particularly foreign-exchange products and services, as well
as online debit and credit card payments and receivables discounting.
Bonsucesso faces a number of well-established competitors in these
market segments, but the nimble execution of this digital strategy
may increase the still-modest contribution of this business.
Bonsucesso's low reliance on market funding and its high liquid
assets are key factors that support its BCA of b2. As management
expands the bank' lending business, it is likely that liquidity
and capital will decline. Bonsucesso's reported regulatory Tier
1 capital ratio of 9.0% as of June 2017, was down
by 300 basis points versus a year earlier, a result of the rapid
loan growth. Moody's expects further capital consumption
at Bonsucesso to result from the 100% deduction of its 40%
stake in Banco Ole Bonsucesso Consignado S.A. from core
capital, as part of the full phase-in of capital regulations.
A thinner capital cushion exposes Bonsucesso to volatility in case asset
quality or profitability weakens. The successful execution of the
bank's strategy is therefore subject to significant transition risks
and is a key factor underlying our negative outlook on the bank's
ratings.
WHAT COULD MAKE THE RATING GO DOWN
The ratings could return to a stable outlook if the pace of growth slows,
with positive implication for its capital ratio as well as to concentration
risk. The ratings could be negatively affected if asset quality
deteriorates leading to higher provisioning expenses, which could
dent capitalization. Ratings could also face downward pressure
if Bonsucesso is unable to successfully execute its repositioning strategy,
and consequently not develop meaningful new sources of recurring earnings.
The principal methodology used in these ratings was Banks published in
September 2017. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Moody's National Scale Credit Ratings (NSRs) are intended as relative
measures of creditworthiness among debt issues and issuers within a country,
enabling market participants to better differentiate relative risks.
NSRs differ from Moody's global scale credit ratings in that they are
not globally comparable with the full universe of Moody's rated entities,
but only with NSRs for other rated debt issues and issuers within the
same country. NSRs are designated by a ".nn"
country modifier signifying the relevant country, as in ".za"
for South Africa. For further information on Moody's approach to
national scale credit ratings, please refer to Moody's Credit rating
Methodology published in May 2016 entitled "Mapping National Scale Ratings
from Global Scale Ratings". While NSRs have no inherent absolute
meaning in terms of default risk or expected loss, a historical
probability of default consistent with a given NSR can be inferred from
the GSR to which it maps back at that particular point in time.
For information on the historical default rates associated with different
global scale rating categories over different investment horizons,
please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1060333.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Farooq Khan
Analyst
Financial Institutions Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653
M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
