NOTE: On September 25, 2017, the press release was corrected as follows: In the Ratings Rationale section, under What Could Change the Ratings Up/Down, the National Scale Credit Ratings Disclosure was added as the last paragraph. Revised release follows.
New York, September 22, 2017 -- Moody's Investors Service, ("Moody's") has today affirmed all of
Banco Votorantim S.A.'s (BV) ratings and assessments,
including its long-term local currency deposit rating of Ba2,
the long-term foreign currency deposit rating of Ba3, as
well as its Nassau Branch's long-term senior unsecured foreign
currency debt rating of Ba2. The outlook remains negative.
Issuer: Banco Votorantim S.A.
..Affirmed:
.... Adjusted Baseline Credit Assessment,
ba2
.... Baseline Credit Assessment, ba3
.... Long Term Counterparty Risk Assessment,
Ba1(cr)
.... Short Term Counterparty Risk Assessment,
NP(cr)
.... Subordinate Regular Bond/Debenture,
Ba3
.... Senior Unsecured Medium-Term Note
Program, (P)Ba2
.... Long Term Local Currency Deposit Rating,
Ba2 Negative
.... Short Term Local Currency Deposit Rating,
NP
.... Long Term Foreign Currency Deposit Rating,
Ba3, Stable
.... Short Term Foreign Currency Deposit Rating,
NP
.... Brazilian National Scale Deposit Rating,
Aa3.br
.... Brazilian National Scale Deposit Rating,
BR-1
.... Other Short Term, (P)NP
..Outlook Actions:
....Outlook, Negative(m)
Issuer: Banco Votorantim S.A. (Nassau Branch)
..Affirmed
....Long Term Counterparty Risk Assessment,
Ba1(cr)
.... Short Term Counterparty Risk Assessment,
NP(cr)
....Senior Unsecured Medium-Term Note
Program, (P)Ba2
....Senior Unsecured Regular Bond/Debenture,
Ba2 Negative
.... Other Short Term, Affirmed (P)NP
..Outlook Actions:
....Outlook, Negative
RATINGS RATIONALE
The affirmation of the ratings incorporates our expectation that the bank
would achieve a meaningful improvement in its capital position,
supported by increasing internal earnings generation as credit and operational
costs decline, and higher-margined loan origination takes
hold. BV's financial performance has improved over the past
12 months, particularly earnings generation, but Moody's
views further strengthening of its capital and profitability as key to
sustain its financial profile.
The negative outlook on BV's ratings reflects the challenges the bank
faces to implement a new lending strategy focused on the corporate and
commercial segments as the economic conditions improve and credit demand
recovers. The succesful implementation of this new strategy will
be necessary if the bank is to achieve the expected performance improvements
embedded in the current rating.
BV's tangible common equity to risk weighted assets (TCE/RWA),
Moody's preferred capitalization metric, is low relative to
peers, at 4.6% in June 2017, and it has been
largely stable over the last 12 months. Moody's capital measure,
which is much lower than BV's 10.3% regulatory common
equity tier 1 capital ratio, deducts the large and growing stock
of deferred tax assets (DTAs) to reflect the loss absorbing capital.
While the bank has generated modest earnings, and the outstanding
volume of RWAs has contracted by 6.8% in the past year,
its capacity to increase capital ratio on a sustainable basis is associated
with higher earnings generation, as well as with the pace of DTA
realization.
The reduction in credit costs and the bank's capacity to capture increasing
non-interest revenues has led to modest improvement in profitability,
with net income to tangible banking assets increasing to 0.53%
in the first half of 2017, from 0.41% in 2016.
The bank is targeting to reposition its activity in the commercial segment
by focusing on secured lending to mid-size companies that yield
better risk adjusted returns. Therefore, profitability could
be favored by higher net interest margins as the bank succeeds in making
this strategic shift under disciplined credit underwriting and risk management.
BV has adopted a more conservative credit stance in 2016, resulting
in 8% contraction of loans in the corporate segment, following
its poor experience with large problematic exposures. Its exposure
to the 20 largest borrowers relative to TCE reduced significantly,
but it is still high, equivalent to 138% in June 2017.
As the bank expands its commercial loan book, the borrower concentration
risk is expected to decline further.
At the same time, we note that the credit quality of BV's
consumer portfolio, predominantly vehicle financing, was relatively
stable over the past years despite the severe economic contraction,
demonstrating the strong adherence of its risk management standards in
this segment.
BV has been able to extend the maturity profile of its funding by issuing
long-term banknotes, while reducing the dependence on short-term
instruments, which helps the bank to better match tenors of assets
and liabilities. This strategy allows BV to increasingly hold its
longer-dated car loans in its balance sheet, which supports
revenues. As an alternative, BV may opt to sell loans to
Banco do Brasil S.A. (BB, Ba2 negative, ba2)
by virtue of its partial ownership by BB. To mitigate its intrinsic
reliance on market funds, BV holds a large volume of liquid resources
and is supported by a sizable undrawn liquidity facility from Banco do
Brasil.
BV's long-term local currency deposit and foreign currency senior
debt ratings of Ba2 incorporate one notch of affiliate support uplift
from its ba3 BCA, to reflect Moody's view of the high likelihood
of support from Banco do Brasil S.A. (Ba2 negative,
ba2).
WHAT COULD CHANGE THE RATING UP/DOWN
BV's BCA and ratings could be downgraded if the bank is unable to improve
its TCE / RWA ratio to at least 6.0%, as well as to
enhance its profitability, with net income to tangible assets exceeding
0.75%. Also, downward pressures on its financial
profile could arise from a deterioration in its funding structure,
with declining share of long-term instruments, as well as
by a meaningful consumption of its liquid resources. BV's ratings
would also face downward pressure if Banco do Brasil were to be downgraded
by multiple notches. Given the negative outlook, we do not
anticipate upward pressures on BV's ratings at this time.
The principal methodology used in these ratings was Banks published in
January 2016. 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.
Alcir Freitas
VP - Senior Credit Officer
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
