New York, December 20, 2019 -- Moody's Investors Service ("Moody's") has today affirmed the respective
local currency, long- and short-term deposit ratings
of Ba1/ Non-Prime for Banco RCI Brasil S.A. (Banco
RCI), Ba2/Non-Prime for Banco PSA Finance Brasil S.A.
(Banco PSA) and Ba1/ Non-Prime for Banco Ford S.A.
(Banco Ford). At the same time, Moody's has affirmed
the ba3 baseline credit assessments (BCA) for Banco RCI, as well
as the ba3 BCA for Banco PSA, and it has lowered to ba3, from
ba2, the BCA on Banco Ford.
The stable ratings outlook reflects Moody's expectation that the banks
will continue to report adequate financial metrics over the next 12 to
18 months, supported by better-than-market average
delinquency levels and comfortable capital cushion.
A full list of the affected ratings and assessments is provided at the
end of this press release.
RATINGS RATIONALE
The banks' deposit ratings reflect their roles as captive banks
of auto manufacturing companies, being solely engaged in financing
sales of vehicles. As such, the banks' businesses strategies
and performance are closely tied to those of their respective manufacturing
companies, and, the ratings benefit from our assessment of
high likelihood of support from their controlling shareholders.
Conversely, because these banks operate a monoline business model,
we reflect the credit negative implications of the limited diversification
of revenues and loans operations in their baseline credit assessments.
The banks' exposure to environmental risks are elevated, consistent
with our general assessment for automobile manufacturers. Moody's
does not have any particular corporate governance concerns for those banks.
BANCO RCI BRASIL S.A.
The affirmation of the ba3 bca reflects RCI's adequate credit risk
management, anchored by the low-risk nature of new car financing
that ensures below-market loan delinquency. Banco RCI's
loan portfolio tends to grow in line with the growth rate of Renault and
Nissan's automobile sales. Management forecasts continuing
double-digit expansion into 2020, following on the 22%
growth reported in the 12 months to June 2019, supported by the
economic recovery and by Renault and Nissan's strategic focus on
deepening the relationship with car dealers and Introducing new models.
The bank's bca is also supported by Moody's expectation that
capitalization will remain adequate to support business growth and provide
additional protection against loan losses. RCI's capital
ratios are consolidated into Santander's prudential conglomerate
for regulatory purposes, although the bank's capital position
is individually overseen by both regulators and controlling shareholders.
Capital targets incorporate additional 400 basis from the minimum required
by local regulators.
Moody's acknowledges the challenges to the bank's profitability that derive
from low earnings diversification and the low interest rate scenario,
including competition from larger banks. Banco RCI profitability,
as measured by net income relative to tangible banking assets, has
averaged 1.9% over the past five years, despite a
recent dip in June 2019 triggered by higher operating costs.
Banco RCI's ratings are constrained by its reliance on market funds and
the low level of liquid assets. About 44% of the bank's
funds are sourced from related parties, mostly in the form of interbank
deposits, resulting in a fairly concentrated funding profile,
although management is working to expand its investor base. Additionally,
its stock of liquid assets is very modest relative to similarly rated
banks, which is partially offset by a match-funded balance
sheet.
The bank's Ba1 local currency deposit rating benefits from a two-notch
uplift from the bank's standalone BCA of ba3. This uplift
reflects our assessment of a high likelihood of support from its parent,
RCI Banque, based on the strategic focus shared between the parent
and the bank
BANCO PSA FINANCE BRASIL S.A.
The affirmation of Banco PSA's bca of ba3 reflects Moody's
expectation that a gradual loan growth over the next 12 to 18 months will
be supported by a modest recovery in the sales of Peugeot and Citroen's
cars and the bank's close relationship with authorized car dealers.
Moody's also expects potential synergies coming from the recently
announced merger plan between Peugeot and FCA.
This rating actions reflects the bank's strong asset risk,
with delinquency levels remaining better-than-market average,
even in moments of loan contraction. From December 2013 to June
2019, Banco PSA's loan shrunk 40% against 1%
at peers, impacted by a more pronounced reduction in the sale of
Peugeot's vehicles than the industry as a whole in the period.
The bank's prudent and well-defined underwriting standards,
together with a gradual economic recovery, have contributed to the
decline of problem loan ratio to low 0.16% in June 2019.
Additionally, the bank has maintained a comfortable loan loss coverage
in excess of six times over the past three years.
Banco PSA's capital ratios are based on Santander Brasil's
prudential conglomerate for regulatory purposes, although there
is a close monitoring of its individual capital adequacy evolution.
Therefore, its individual TCE to RWA, as measured by Moody's,
of 16% in June 2019, has also been a credit strength,
providing additional protection against potential loan losses and supporting
the recovery of loan growth.
The bank's ratings, on the other hand, are constrained
by low earnings diversification and profitability metrics closely tied
to the sales volumes of Peugeot and Citroen. The bank reported
net income to tangible banking assets of 1.65% in June 2019,
supported by lower credit costs. Also, similar to peers,
Banco PSA has a high reliance on market funds and low stock of liquid
assets, offset by a matched asset-liability and stable access
to related parties' funding. Around 80% of the bank's
funding are interbank deposits sourced from Banco Santander, evidencing
a concentrated but also strong parental support.
Moody's assesses a high likelihood of support from its parent,
Banco Santander Brasil, based on the strategic focus shared between
the parent and the bank. Based on that, Banco PSA Finance
Brasil receives one-notch uplift from its assigned bca.
BANCO FORD S.A.
The lowering of Banco Ford's bca to ba3, from ba2, incorporates
the volatility in its asset quality ratios that results from the bank's
exclusive focus on financing floor plans. The action also reflects
Moody's expectation that the bank's business growth will remain
largely stable over the next 12-18 months amidst Ford Motor Company's
global business restructuring, which has already led to the decision
to discontinue the truck production in Brazil. Nevertheless,
Banco Ford' s asset quali reflects a better-than-market
credit risk, supported by a collateralized loan book and frequent
monitoring of the car dealers' financial profile. Banco Ford's
Moody's capitalization ratio, which we measure as tangible common
equity (TCE) relative to risk weighted assets (RWAs), has been,
on average, above 14% over the past five years, after
accounting for the annual dividend payout to its parent company.
At this level, Banco Ford's capitalization is in line with
that of Banco PSA.
The ba3 BCA also underscores the bank's above peers' profitability,
which benefits from a lean operating structure as a result of its business
model. Results in June 2019 also benefited from lower credit costs,
associated to an intrinsically low-risk portfolio. Similar
to peers' peer, the bank's key rating constraints derive
from its wholesale and highly confidence sensitive funding base,
as well as from its low stock of liquid assets. Banco Ford does
not rely on funding lines from related parties, but it counts with
a contingent liquidity facility from the parent company, whenever
necessary.
The bank's Ba1 local currency deposit rating benefits from a two-notch
uplift from the BCA of ba3. This uplift reflects our assessment
of a very high likelihood of support from its parent, Ford Motor
Credit Company LLC, based on the strategic focus shared between
the parent and the bank.
WHAT COULD CHANGE THE RATING -- DOWN/UP
BANCO RCI BRASIL S.A.
Improved profitability metrics and asset-quality indicators over
the next 12-18 months could result in upward rating pressure on
RCI Brasil's standalone BCA. Attempts to diversify the bank's funding
base and reduce concentration could also lead to upward pressure on its
rating. A weakening of RCI Brasil's asset-quality indicators
and profitability would have a negative effect on the BCA. A downgrade
of the parent's standalone BCA could lead to a downgrade of the bank's
global local-currency deposit rating.
BANCO PSA FINANCE BRASIL S.A.
A significant improvement in the bank's profitability and lower reliance
on confidence-sensitive market funding would lead to upward pressure
on the bank's BCA. A deterioration in the bank's asset risk or
a significant decline in its capitalization would strain the bank's ratings.
Lower profitability in light of the company's poor performance in the
car industry could also strain its ratings. A downgrade of Santander
Brasil's ratings would lead to a downgrade of Banco PSA's ratings
BANCO FORD S.A.
A scenario of more stable asset-quality indicators over the next
12-18 months could result in upward rating pressure on Banco Ford's
standalone BCA. Attempts to diversify the bank's funding base and
reduce concentration could also lead to upward pressure on its rating.
An upgrade in Banco Ford's supported ratings would occur following an
upgrade in FMCC's ratings. Negative pressure on Banco Ford's ratings
could result from weaker profitability or asset quality, which could
occur should the bank face another substantial drop in its loan origination
or if a large volume of car dealers become delinquent.
METHODOLOGY USED
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 RCI is 60.1% owned by RCI Banque in France and 39.9%
by Banco Santander Brasil. It is a credit-oriented monoline
bank created in 2000 to finance the sales of vehicles produced by Renault
and Nissan in Brasil. Headquartered in Curitiba, it presented
equity of BRL 1.2 billion and loans of BRL 9.4 billion in
June 2019.
Banco PSA is a Joint-venture Banco Santander and PSA Banque Finance.
It is a credit-oriented monoline bank that finances the sales of
vehicles produced by Peugeot and Citroen in Brasil. Headquartered
in Sao Paulo, it had equity of BRL 276 million and loans of BRL
1.7 billion in June 2019.
Banco Ford is indirectly owned by Ford Motor Credit Company LLC (USA),
which, on its turn, is 100% controlled by Ford Motor
Company (USA). Banco Ford has a mono-line operation that
is closely tied to the volume of cars sold by Ford in Brazil. The
bank's core business is to provide floor plan financing to authorized
Ford car dealers for the acquisition of new vehicles from the automaker.
Headquartered in São Bernardo do Campo, in June 2019,
it had total assets of BRL 1.1 billion, equity of BRL 256
million and loans of BRL976 million.
LIST OF AFFECTED RATINGS AND ASSESSMENTS
The following ratings and assessments of Banco RCI Brasil S.A were
affirmed:
- Long-term global foreign-currency counterparty
risk rating of Ba1
- Long-term global local-currency counterparty risk
rating of Baa3
- Long-term Brazilian national scale counterparty risk rating
of Aaa.br
- Short-term global foreign-currency counterparty
risk rating of NP
- Short-term global local-currency counterparty risk
rating of P-3
- Short-term Brazilian Counterparty Risk Rating of BR-1
- Long-term global foreign-currency deposit rating
of Ba3, stable outlook
- Long-term global local -currency deposit rating
of Ba1, stable outlook
- Long-term Brazilian national scale deposit rating of Aaa.br
- Short-term global foreign-currency deposit rating
of NP
- Short-term global local -currency deposit rating
of NP
- Short-term Brazilian national scale deposit rating of
BR-1
- Long-term counterparty risk assessment of Baa3(cr)
- Short-term counterparty risk assessment of P-3(cr)
- Baseline credit assessment of ba3
- Adjusted baseline credit assessment of ba1
The outlook is stable
The following ratings and assessments of Banco PSA Finance Brasil S.A
were affirmed:
- Long-term global foreign-currency counterparty
risk rating of Ba1
- Long-term global local-currency counterparty risk
rating of Ba1
- Long-term Brazilian national scale counterparty risk rating
of Aaa.br
- Short-term global foreign-currency counterparty
risk rating of NP
- Short-term global local-currency counterparty risk
rating of NP
- Short-term Brazilian Counterparty Risk Rating of BR-1
- Long-term global foreign-currency deposit rating
of Ba3, stable outlook
- Long-term global local -currency deposit rating
of Ba2, stable outlook
- Long-term Brazilian national scale deposit rating of Aa2.br
- Short-term global foreign-currency deposit ratings
of NP
- Short-term global local -currency deposit rating
of NP
- Short-term Brazilian national scale deposit rating of
BR-1
- Long-term counterparty risk assessment of Ba1(cr)
- Short-term counterparty risk assessment of NP(cr)
- Baseline credit assessment of ba3
- Adjusted baseline credit assessment of ba2
The outlook is stable
The following assessment of Banco Ford S.A. was downgraded:
- Baseline credit assessment to ba3, from ba2
The following ratings and assessments of Banco Ford S.A.
were affirmed:
- Long-term global foreign-currency counterparty
risk rating of Ba1
- Long-term global local-currency counterparty risk
rating of Baa3
- Long-term Brazilian national scale counterparty risk rating
of Aaa.br
- Short-term global foreign-currency counterparty
risk rating of NP
- Short-term global local-currency counterparty risk
rating of P-3
- Short-term Brazilian Counterparty Risk Rating of BR-1
- Long-term global foreign-currency deposit rating
of Ba3, stable outlook
- Long-term global local -currency deposit rating
of Ba1, stable outlook
- Long-term Brazilian national scale deposit rating of Aaa.br
- Short-term global foreign-currency deposit rating
of NP
- Short-term global local -currency deposit rating
of NP
- Short-term Brazilian national scale deposit rating of
BR-1
- Long-term counterparty risk assessment of Baa3(cr)
- Short-term counterparty risk assessment of P-3(cr)
- Adjusted baseline credit assessment of ba1
The outlook is stable
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.
Araes Theresangela
Vice President - Senior 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: 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
