New York, May 29, 2020 -- Moody's Investors Service, ("Moody's") has
today confirmed Banco Ford S.A.'s (Banco Ford) long term
global local currency deposit rating at Ba2. The long-term
counterparty risk assessment at Ba1(cr) and the long-term local
currency counterparty risk rating at Ba1 were affirmed. At the
same time, Moody's affirmed Banco Ford's ba3 baseline credit
assessment (BCA). The outlook on the ratings is negative.
The rating action concludes the review for downgrade that was initiated
on March 28, 2020, and that was prompted by similar actions
taken on the ratings of its immediate parent, Ford Motor Credit
Company LLC (Ford Credit, senior at Ba2, outlook negative).
Please see "Moody's confirms Ford Credit's long-term senior unsecured
rating at Ba2, concluding review; outlook is negative".
The ratings confirmation and negative outlook also reflects Moody's view
that the Brazilian economy will contract in 2020 as a result of the coronavirus
outbreak, which will likely have a direct negative impact on Banco
Ford's and other Brazilian banks' asset quality and profitability.
Moody's regards the coronavirus outbreak as a social risk under
our ESG framework, given the substantial implications for public
health and safety.
Banco Ford's Ba2 local currency deposit rating and ba2 adjusted
BCA incorporates one-notch of uplift from its BCA of ba3 to reflect
our assessment of a very high likelihood of support from its parent,
Ford Credit, based on the strategic focus shared between the parent
and the bank.
The following rating of Banco Ford S.A. was confirmed:
- Long-term global local -currency deposit rating
confirmed at Ba2, outlook changed to negative from rating under
The following ratings were affirmed:
- Long-term global local-currency counterparty risk
rating affirmed at Ba1
- Short-term global local-currency counterparty risk
rating affirmed at NP
- Long-term global foreign-currency counterparty
risk rating affirmed at Ba1
- Short-term global foreign-currency counterparty
risk rating affirmed at NP
- Long-term Brazilian national scale counterparty risk rating
affirmed at Aaa.br
- Short-term Brazilian national scale counterparty risk
rating affirmed at BR-1
- Short-term global local-currency deposit rating
affirmed at NP
- Long-term global foreign-currency deposit rating
affirmed at Ba3, stable outlook
- Short-term global foreign-currency deposit rating
affirmed at NP
- Long-term Brazilian national scale deposit rating affirmed
- Short-term Brazilian national scale deposit rating affirmed
- Long-term counterparty risk assessment affirmed at Ba1(cr)
- Short-term counterparty risk assessment affirmed at NP(cr)
- Baseline credit assessment affirmed at ba3
- Adjusted baseline credit assessment affirmed at ba2
- Outlook changed to negative, from Rating Under Review
The confirmation of Banco Ford's rating reflects Moody's unchanged
assessment of the bank's ba3 standalone assessment and affiliate
support from Ford Credit. Moody's noted that Banco Ford's deposit
ratings reflect its role as a captive financing arm of Ford Motor do Brasil,
being solely engaged in financing sales of vehicles of the auto manufacturing
company. As such, Banco Ford's business strategy and
performance are closely tied to those of its manufacturing company.
Banco Ford's unchanged ba3 standalone assessment takes into consideration
the company's predominantly short-term and secured loan portfolio
and its strong capital cushion that offers protection against unexpected
losses. The bank's historically better-than-peers'
asset quality is supported by the inherent low-risk floor plan
finance business and its ongoing monitoring of the car dealers' financial
profiles. Loan loss reserve remained high, providing ample
coverage to problem loans. Nevertheless, Banco Ford's
asset quality, which was strong at the onset of the coronavirus
outbreak, could weaken as business closure and pullback in local
consumption results in economic deceleration and car sales decline.
Loan payment deferrals may also masks asset quality metrics over the medium--term.
At the same time, Moody's acknowledges that the bank's capital base,
measured as Moody's tangible common equity (TCE) relative to risk weighted
assets (RWA) at 17% in December 2019 remains adequate to provide
additional protection against loan losses. We expect that a slowdown
in loan origination over the next months and temporary regulatory measures,
including the capping of dividends to a maximum statutory 25% and
lowering of capital conservation buffer requirements, will preserve
the bank's capital in the face of coronavirus outbreak' effects on asset
quality and profitability.
Similar to peers', the bank's wholesale and highly confidence-sensitive
funding base remains a key rating constraint, together with low
stock of liquid assets. Moody's expects the bank to maintain
a concentrated funding base in the form of interbank deposits or other
guaranteed funding. Banco Ford does not rely on funding lines from
related parties, but it counts with a contingent liquidity line
made available by its parent company, whenever necessary.
The bank has also reinforced its minimum cash position to support credit
forbearances and dilute any cash flow mismatches during the pandemic.
In the meantime, Moody's expect lower business volumes,
combined with higher credit and funding costs will weight on Banco Ford's
profitability, with revenues already limited by its monoline business
model. Results in 2019 were affected by lower interest income resulting
from a contraction of its loan book. However, the reversal
of provisions for credit losses and a lean operational structure helped
the bank record net income to tangible banking assets of 3.7%
in 2019, from 1.9% in 2018. Moody's expects
Banco Ford to maintain operating costs under control, although its
cost of funding may increase.
The negative outlook on Banco Ford was prompted by similar actions taken
on the ratings for its parent Ford Credit, which in turn,
reflects the actions on Ford Credit's parent, Ford Motor Company
(Ford, Ba2 corporate family rating, negative).
Moody's regards the coronavirus pandemic as a social risk under its ESG
framework, given the substantial implications for public health
and safety. Please see Moody's Environmental risks and Social risks
heatmaps for further information. Today's rating actions reflect
the impact on Banco Ford of the severity of the shock, and Moody's
view of its ability to withstand it under its current assumptions.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A scenario of more stable asset-quality indicators and maintenance
of profitability 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 Ford Credit's ratings.
Because of the support assumptions incorporated into Banco Ford's rating,
a downgrade of Ford Credit's rating may lead to a downgrade of Banco Ford's
ratings. The bank's BCA could face negative pressures as a result
of material deterioration of asset quality and profitability, arising
from higher provisions and increase in funding costs. A consistent
decline in profitability could hurt the bank's ability to replenish capital
through earnings, which could be negative in the long run.
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Banco Ford is indirectly owned by Ford Motor Credit Company LLC (USA),
which, in turn, is 100% controlled by Ford Motor Company
(USA). Headquartered in São Bernardo do Campo, in
December 2019, it had total assets of BRL 1.1 billion,
equity of BRL 256 million and loans of BRL976 million.
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M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
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Moody's Investors Service, Inc.
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