New York, October 27, 2015 -- Moody's Investors Service has today changed to negative from stable the
outlook on the ratings of four Brazilian banks, namely Banco ABC
Brasil S.A. (BAB), Banco Alfa de Investimento S.A.
(Alfa), Banco BBM S.A. (BBM) and Banco Daycoval S.A.
(Daycoval), including their long-term global local-
and foreign-currency deposit ratings, and their senior unsecured
debt ratings. At the same time, Moody's affirmed all
global ratings, including the baseline credit assessments (BCA)
of four banks.
The following ratings and assessments assigned to Banco ABC Brasil S.A.
were affirmed:
Baseline credit assessment of baa3
Adjusted baseline credit assessment of baa3
Long-term global local currency deposit rating: Baa3,
negative outlook
Short-term global local currency deposit rating: Prime-3
Long-term foreign currency deposit rating: Baa3, negative
outlook
Short-term foreign currency deposit rating: Prime -3
Long-term foreign currency subordinated debt rating: Ba1
Long-term local currency senior unsecured debt rating: Baa3,
negative outlook
Long-term foreign currency senior unsecured rating assigned to
the MTN Program: (P)Baa3
Short-term foreign currency senior unsecured rating assigned to
the MTN Program: (P)Prime -3
Long-term Brazilian national scale deposit rating: Aa1.br
Short-term Brazilian national scale deposit rating: BR-1
Long-term counterparty risk assessment of Baa2(cr)
Short-term counterparty risk assessment of Prime-2(cr)
The following ratings and assessments assigned to Banco Alfa de Investimento
S.A. were affirmed:
Baseline credit assessment of baa3
Adjusted baseline credit assessment of baa3
Long-term global local currency deposit rating: Baa3,
negative outlook
Short-term global local currency deposit rating: Prime-3
Long-term foreign currency deposit rating: Baa3, negative
outlook
Short-term foreign currency deposit rating: Prime -3
Short-term Brazilian national scale deposit rating: BR-1
Long-term counterparty risk assessment of Baa2(cr)
Short-term counterparty risk assessment of Prime-2(cr)
The following rating assigned to Banco Alfa de Investimento S.A.
was downgraded:
Long-term Brazilian national scale deposit rating: to Aa1.br,
from Aaa.br
The following ratings and assessments assigned to Banco BBM S.A.
were affirmed:
Baseline credit assessment of baa3
Adjusted baseline credit assessment of baa3
Long-term global local currency deposit rating: Baa3,
negative outlook
Short-term global local currency deposit rating: Prime-3
Long-term foreign currency deposit rating: Baa3, negative
outlook
Short-term foreign currency deposit rating: Prime -3
Long-term Brazilian national scale deposit rating: Aa1.br
Short-term Brazilian national scale deposit rating: BR-1
Long-term counterparty risk assessment of Baa2(cr)
Short-term counterparty risk assessment of Prime-2(cr)
The following ratings and assessments assigned to Banco Daycoval S.A.
were affirmed:
Baseline credit assessment of baa3
Adjusted baseline credit assessment of baa3
Long-term global local currency deposit rating: Baa3,
negative outlook
Short-term global local currency deposit rating: Prime-3
Long-term foreign currency deposit rating: Baa3, negative
outlook
Short-term foreign currency deposit rating: Prime-3
Long-term foreign currency senior unsecured debt rating:
Baa3, negative outlook
Long-term foreign currency senior unsecured rating assigned to
the MTN Program: (P)Baa3
Long-term Brazilian national scale deposit rating: Aa1.br
Short-term Brazilian national scale deposit rating: BR-1
Long-term counterparty risk assessment of Baa2(cr)
Short-term counterparty risk assessment of Prime-2(cr)
RATINGS RATIONALE
In changing the rating outlook to negative from stable, Moody's
acknowledges that the ongoing economic recession poses downside risks
to these banks' financial performance, and especially to their
asset quality and profitability, because their loan books and revenue
streams are less diversified than similarly rated Brazilian universal
banks. The deterioration of the operating environment, in
line with Moody's expectation of economic contraction until 2016,
creates lingering pressures on companies and households repayment capacity,
and reduces confidence and business volumes. In this context,
risks are skewed to the downside, and may lead to a higher and faster-than-expected
strain on these banks' financial profiles.
The negative outlook on the banks' ratings incorporates the degree
of sector and borrower concentration in their loan books, which
increases their susceptibility to asset risk volatility, particularly
in the current economic recession. While efforts by these banks
to lend selectively and improve collateralization help mitigate risks,
an increase in loan renegotiations reflect the generalized weak conditions
facing corporations, their main business target. Declining
credit quality will continue to demand higher provisions, and will
pressure profitability in an environment of more limited business volumes,
despite rising credit spreads.
In affirming these banks' investment grade ratings, Moody's
acknowledges the relative stability of their business models, yielding
consistent profitability, and conservative risk management,
which is evidenced by the relatively contained level of loan losses through
past credit cycles. These banks also report capitalization ratios
well above the regulatory minimum and above similarly rated banks in Brazil,
which, along with conservative level of reserves, provide
important cushion against loan losses. These banks have a defensive
liquidity management, with (1) appropriate assets and liabilities
management; (2) a diversified, though largely market-based,
funding mix; and (3) an appropriate amount of liquid assets.
SPECIFIC ANALYTICAL FACTORS RELATED TO THE FOUR BANKS
BANCO ABC BRASIL
The affirmation of BAB's BCA at baa3 acknowledges the bank's consistent
performance and disciplined risk guidelines that have supported its performance
through economic cycles.
However, Moody's notes the recent increase in non-performing
loans since the end of 2014, doubling to 1.3% in June
2015, and its lower-than peers capital ratio, measured
by its 10.6% tangible common equity ratio. The bank
reported significant increment of renegotiated loans in the period that
accounted for 3.9% of total loans. In addition,
the negative outlook considers the higher-than-peers borrower
concentrations, particularly if credit exposures are adjusted to
include risks related to guarantees issued, off balance sheet items.
Moody's also affirmed BAB's Baa3 supported deposit and senior debt ratings
that map directly from its baa3 BCA. Although the likelihood of
support, if necessary, from parent Arab Banking Corporation
(ABC, Ba1 positive, ba2 BCA) is high, BAB's ratings
are currently higher than its parent's. The Ba1 subordinated debt
rating and Brazilian long-term and short-term national scale
deposit ratings of Aa1.br and BR-1 respectively were also
affirmed.
WHAT COULD MAKE THE RATING GO UP
At this juncture, there is no upward rating pressure on BAB's
Baa3 deposit ratings given the negative outlook and that current ratings
are already in line with Brazil's sovereign bond rating of Baa3.
WHAT COULD MAKE THE RATING GO DOWN
For BAB, capital is a key driver for the rating. Rating pressures
could result from a sharp deterioration in asset risk metrics, triggered
by both borrower concentration and rising delinquencies, combined
with a significant reduction in earnings generation that could arise from
a long period of low business volumes, and/or increasing credit
costs. BAB's rating would also be downgraded if Brazil's
sovereign bond rating were to be downgraded.
BANCO ALFA DE INVESTIMENTO
The affirmation of Alfa's BCA at baa3 reflects its steady earnings
recurrence, stable asset quality metrics, and comfortable
capitalization relative to peers, as evidenced by Moody's
ratio of tangible common equity to risk weighted assets of 17.3%
as of June 2015. The volume of renegotiated loans accounted for
2% of total loans, while the bank reported non-performing
loan ratio of 0.53% in the period.
Despite stable financial indicators, Alfa reports high borrowers
concentration relative to capital and a funding structure that is predominantly
market-based, both of which pressure asset quality and profitability
in a prolonged period of weak economic activity.
As a result, Alfa compares unfavorably with other banks in Brazil
at the same rating category in the global scale and stable outlook.
The downgrade of the national scale deposit rating to Aa1.br reflects
the negative outlook on the global deposit rating.
WHAT COULD MAKE THE RATING GO UP
At this juncture, there is no upward rating pressure on Alfa's
Baa3 deposit ratings given the negative outlook and that current ratings
are already in line with Brazil's sovereign bond rating of Baa3.
WHAT COULD MAKE THE RATING GO DOWN
Alfa's ratings could be downgraded if financial fundamentals,
specifically asset quality and profitability, deteriorate as a result
of the persistently lackluster macroeconomic environment. The failure
of single large borrowers could also result in credit losses and capital
pressures.
BANCO BBM
The affirmation of BBM's baa3 BCA acknowledges the effectiveness
in credit risk management, as evidenced by its reduced charge-offs
through the cycles. BBM's disciplined leverage target,
which does not exceed three times its shareholders' equity,
reduces the potential impact of loan losses in its capitalization,
which is currently strong relative to peers', with a tangible
common equity to risk-weighted assets of 18.6% in
June 2015. Nevertheless, loan concentration in risky economic
sectors and the deteriorating operating environment have led NPLs to increase
to 2.1% in June 2015, up from 0.5%.
The bank' structural reliance on market funding is offset by high
liquidity.
On 19 May 2015, Bank of Communications Co., Ltd.
(BoCom, A2 stable, baa3) announced the acquisition of an 80%
stake in BBM. Upon the conclusion of this deal, which is
subject to approval of authorities in Brazil and China, Moody's
will incorporate into BBM's ratings an assessment of affiliate support
from BoCom. At the same time, Moody's will reassess
BBM's financial profile, which may be positively or negatively
affected by potential shifts in its strategy and risk appetite under new
ownership.
WHAT COULD MAKE THE RATING GO UP
At this juncture, there is no upward rating pressure on BBM's
Baa3 deposit ratings. The stabilization of BBM's outlook
could derive from its ability to keep adequate asset risk and profitability,
despite the weak economic environment, coupled with the maintenance
of strong capitalization.
WHAT COULD MAKE THE RATING GO DOWN
Negative pressures on BBM's BCA and ratings would derive from a
significant deterioration in its asset risk that results in a meaningful
profitability reduction, or a relevant deterioration in its liquidity
management standards.
Also, a downgrade (or upgrade) of BBM's BCA and ratings could
derive from the completion of its acquisition by BoCom.
BANCO DAYCOVAL
In affirming Daycoval's ratings, Moody's acknowledges (1) the bank's
low leveraged operation compared to similar rated peers; as well
as (2) conservative risk management and strong collateral structures.
Daycoval high quality capital base compares favorably to similarly rated
banks. In June 2015, the bank had a reported Tier 1 equity
ratio of 18.7% and a sizable cash liquidity position equivalent
to almost 70% of total deposits.
Reflecting management's expectation for deteriorating risk conditions
over the next quarters, Daycoval reported much higher provisions
which reduced recurring net income by 23.3% quarter over
quarter in June 2015.
WHAT COULD MAKE THE RATING GO UP
At this juncture, there is no upward rating pressure on Daycoval's
Baa3 deposit ratings given the negative outlook and that current ratings
are already in line with Brazil's sovereign bond rating of Baa3.
WHAT COULD MAKE THE RATING GO DOWN
Negative rating pressures could result from a deterioration in asset quality
combined with a significant reduction in earnings that could arise from
rapid deterioration in its small and medium-sized enterprise loan
book, or from increasing borrower's concentration risk. A
material loan growth that could particularly compromise its capital structure
and asset quality indicators -- whose preservation is key
at this rating level -- could also affect ratings negatively.
LAST RATING ACTION & USED METHODOLOGIES
The last rating action on BAB was on 12 June 2015, when Moody's
affirmed its baseline credit assessment (BCA) of baa3; the global
local- and foreign-currency deposit ratings of Baa3;
the long-term foreign currency senior unsecured debt rating of
Baa3; the short-term local- and foreign-currency
deposit ratings of P-3; the long-term foreign currency
subordinated debt rating of Ba1; the long-term Brazilian national
scale deposit rating of Aa1.br; and the short-term
Brazilian national scale deposit rating of BR-1. The outlook
on all ratings remained stable.
The last rating action on Alfa was on 12 August 2015, when Moody's
downgraded its BCA to baa3 from baa2, and its global local-
and foreign currency deposit ratings to Baa3 from Baa2. Moody's
also affirmed Alfa's short-term local- and foreign-currency
deposit ratings of P-3. The outlook on all ratings was changed
to stable from negative. This rating action followed the downgrade
to Baa3 from Baa2 of Brazil's government bond rating.
The last rating action on BBM was on 11 May 2015 when Moody's upgraded
its BCA to baa3 from ba1; the long-term global local-
and foreign-currency deposit ratings to Baa3 from Ba1; the
short-term local- and foreign-currency deposit ratings
to P-3 from NP; and the long-term Brazilian national
scale deposit rating to Aa1.br from Aa2.br. The outlook
assigned to all ratings was stable.
The last rating action on Daycoval was on 12 August 2014, when Moody's
assigned a Baa3 global local currency debt rating and a Aa1.br
national scale debt rating to Daycoval's proposed BRL400 million local
currency senior unsecured banknotes (letras financeiras). The outlook
on the debt rating was stable. All other rating remained unchanged
The principal methodology used in hese ratings was Banks published in
March 2015. Please see the Credit Policy 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 June 2014 entitled "Mapping Moody's National
Scale Ratings to Global Scale Ratings".
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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300
M. Celina Vansetti
MD - Banking
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's changes to negative outlook on four Brazilian banks' ratings; affirms deposit and debt ratings
