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Rating Action:

Moody's affirms Banco Santander (Brasil)'s ratings; outlook stable

16 Mar 2020

NOTE: On May 19, 2020, the press release was corrected as follows: In the debt list, the outlook action for Banco Santander (Brasil) S.A. - Cayman Br was changed to: “Outlook, No Outlook.” Revised release follows.

New York, March 16, 2020 -- Moody's Investors Service ("Moody's") has today affirmed all ratings and assessments assigned to Banco Santander (Brasil) S.A. (SANB), including its long and short-term local currency deposit ratings of Ba1 and Not Prime, the long and short-term foreign currency deposit ratings of Ba3 and Not Prime, long and short-term provisional foreign currency senior unsecured MTN ratings of (P)Ba1 and (P)Not Prime, as well as the long and short-term national scale deposit ratings of Aaa.br and BR-1. SANB's ba2 baseline credit assessment (BCA), the ba1 adjusted BCA, the global and national scale counterparty risk ratings, in local and foreign currencies, and the counterparty risk assessments (CRAs) were also affirmed. The outlook on the ratings is stable.

At the same time, Moody's has affirmed all ratings and the counterparty risk assessments assigned to Banco Santander (Brasil) S.A. -Cayman Branch, including the long and short-term provisional foreign currency senior unsecured MTN ratings of (P)Ba1 and (P)Not Prime.

A full list of the affected ratings and assessments is provided at the end of this press release.

RATINGS RATIONALE

The affirmation of SANB's ratings and assessments reflects the bank's strong profitability that has been supported by steady growth of its customer base, a focused strategy on higher-yielding consumer loans and improving operating efficiency. SANB's recurring earnings have consistently improved between 2017 and 2019, with net income to tangible assets reaching 1.51% average in this period, from below 1% before 2017, which is in line with its large-bank peers'. However, we expect the bank's profitability to soften in 2020 as a result of lower yields on assets due to competition, low interest rates levels, and a moderation in loan origination over the next quarters, due to the expected slowdown in economic activities over the next quarters. We also anticipate SANB will be able to offset these pressures with continuing cost discipline and steady growth of fee-based activities. Different from its main peers, SANB has not yet showed consistent reduction of its traditional branch network as part of its dynamic digital transformation, which gives it room to continue to lower operating costs over the next quarters.

With regard to asset quality, SANB's aggressive expansion into competitive consumer products and to loans to small and medium size companies, although largely backed by collaterals, may still expose the bank to higher credit risks in the event the pace of Brazil's economic recovery weakens in 2020. This could be compounded by a global deceleration and the downside risks of the coronavirus disruptions. In 2019, total loans increased 15.3% in 12 months ended December, roughly two times the system's average, primarily on payroll loans and auto finance, as corporate loan growth decelerated, reducing concentration risks. . In the period, nonperforming loans stabilized at roughly 3.8% of gross loans at the end of 2019, just below 3.9% one year prior and 4% in 2017. The shift in portfolio mix towards higher-yielding loans are compensated by the high reserve buffer maintained by the bank, which remained at 6.1% of total loans in 2019.SANB's capital position, measured by Moody's as tangible common equity relative to risk weighted assets, declined in 2019 to 7.4%, from the 8.1% average over the past two years, which is below that of its main peers. The decline in capitalization was due to a high 76% dividend payout in 2019, above the average 60% distribution in prior years, and the rapid loan growth. Nonetheless, Moody's expects SANB's would reduce unusual dividend payouts to around 50% in a more stressed economic environment, helping capital to be rebuilt quickly.

SANB's strong and well-established retail deposit franchise is a key strength and provides stable access to core deposit funding that supports the bank's expansion strategy and its profitability.

The Ba1 local currency deposit and senior unsecured MTN ratings assigned to SANB incorporate a moderate likelihood that the Brazilian subsidiary would receive support from its parent, Banco Santander S.A. (Spain), which has a BCA of baa1. Therefore, SANB's ba2 BCA incorporates one notch of uplift to an adjusted BCA of ba1, which anchors the local currency deposit and senior unsecured debt ratings at Ba1. The bank's foreign currency deposit rating of Ba3 is constrained by Brazil's deposit ceiling for foreign currency deposits.

Moody's believes SANB's exposure to environmental risks is low, consistent with its general assessment for the global banking sector. SANB's exposure to social risks is moderate, consistent with Moody's general assessment for the global banking sector. As well, governance risks are largely internal rather than externally driven. Moody's does not have any particular concerns with SANB's governance.

WHAT COULD MOVE THE RATINGS -- UP/DOWN

SANB's ba2 BCA is aligned to Brazil's Ba2 sovereign rating, reflecting the strong credit interlinks between the sovereign and banks' creditworthiness. Its ratings would be upgraded if Brazil's sovereign rating were to be upgraded, and if its asset quality and profitability support continued strengthening of its capitalization. .Upward movement on the BCA would depend on an upgrade at the parent Banco Santander S.A. (Spain)'s baa1 BCA, currently aligned to Spain's Baa1 sovereign debt rating, which has a stable outlook.

For the same reasons, SANB's BCA could be downgraded if Brazil's sovereign rating is downgrade or if the bank asset quality, capital and profitability metrics deteriorated materially. Negative pressures on the adjusted BCA as well as its deposits and debt ratings would arise from a downgrade at the parent's BCA.

METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in November 2019. 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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1174796.

Banco Santander (Brasil) S.A. is based on São Paulo, Brazil, with consolidated asset of BRL857.5 billion and total shareholder's equity of BRL71.5 billion as of 31 December 2019.

LIST OF AFFECTED RATINGS AND ASSESSMENTS

The following ratings and assessments of Banco Santander (Brasil) S.A. were affirmed:

- Long-term global local currency deposit rating of Ba1, stable outlook

- Short-term global local currency deposit rating of Not Prime

- Long-term global foreign currency deposit rating of Ba3, stable outlook

- Short-term global foreign currency deposit rating of Not Prime

- Long-term senior unsecured Medium-Term Note Program rating of (P)Ba1

- Short-term senior unsecured Medium-Term Note Program rating of (P)Not Prime

- Long-term global local currency counterparty risk rating of Baa3

- Short-term global local currency counterparty risk rating of Prime-3

- Long-term global foreign currency counterparty risk rating of Ba1

- Short-term global foreign currency counterparty risk rating of Not Prime

- Long-term Brazilian national scale deposit rating of Aaa.br

- Short-term Brazilian national scale deposit rating of BR-1

- Long-term Brazilian national scale counterparty risk rating of Aaa.br

- Short-term Brazilian national scale counterparty risk rating of BR-1

- Baseline credit assessment of ba2

- Adjusted baseline credit assessment of ba1

- Long-term counterparty risk assessment of Baa3(cr)

- Short-term counterparty risk assessment of Prime-3(cr)

..Outlook Actions:

....Outlook, Stable

The following ratings and assessments of Banco Santander (Brasil) S.A.- Cayman Br were affirmed:

- Long-term global local currency counterparty risk rating of Baa3

- Short-term global local currency counterparty risk rating of Prime -3

- Long-term global foreign currency counterparty risk rating of Ba1

- Short-term global foreign currency counterparty risk rating of Not Prime

- Long-term counterparty risk assessment of Baa3(cr)

- Short-term counterparty risk assessment of Prime-3(cr)

- Long-term senior unsecured Medium-Term Note Program rating of (P)Ba1

- Short-term senior unsecured Medium-Term Note Program rating of (P)Not Prime

..Outlook Actions:

....Outlook, No Outlook

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

Ceres Lisboa
Senior Vice President
Financial Institutions Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 0 800 891 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

No Related Data.
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