New York, June 10, 2020 -- Moody's Investors Service, ("Moody's") has
today downgraded Banco RCI Brasil S.A.'s (Banco RCI) long
term global local currency deposit rating to Ba2, from Ba1,
as well its respectively long- and short-term Counterparty
Risk Assessments (CRA) to Ba1(cr)/NP(cr), from Baa3(cr)/Prime-3(cr)
and its long- and short-term local currency Counterparty
Risk Ratings (CRR) to Ba1/NP, from Baa3/Prime-3, respectively.
The bank's adjusted baseline credit assessment was also downgraded
to ba2, from ba1. On the Brazilian national scale,
Moody's downgraded Banco RCI's long-term deposit ratings
to Aa2.br, from Aaa.br. All other ratings and
assessment assigned to Banco RCI remain unchanged.
The rating action concludes the review for downgrade that was initiated
on April 8, 2020, and that was prompted by similar actions
taken on the ratings of its immediate parent, RCI Banque (long-term
deposit and senior unsecured debt ratings to Baa2). Please see
" Moody's downgrades RCI Banque's deposit and senior unsecured ratings
to Baa2; outlook is negative".
The ratings downgrade 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 RCI'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 RCI'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 high likelihood of support from its parent,
RCI Banque, based on the strategic focus shared between the parent
and the bank.
The following ratings and assessments of Banco RCI were downgraded:
- Long-term global local-currency deposit rating
to Ba2, from Ba1, outlook changed to stable from Ratings Under
- Long-term counterparty risk assessment to Ba1(cr),
- Short-term counterparty risk assessment to NP(cr),
- Long-term global local-currency counterparty risk
rating to Ba1, from Baa3
- Short-term global local-currency counterparty risk
rating to NP, from P-3
- Long-term Brazilian national scale deposit rating to Aa2.br,
- Adjusted baseline credit assessment of ba2, from ba1
Outlook Actions for Banco RCI Brasil S.A:
- Outlook changed to stable, from Rating Under Review
Moody's noted that RCI Brasil's deposit ratings reflect its role as a
captive financing arm, being solely engaged in financing sales of
vehicles produced by both Renault do Brasil S.A. and Nissan
do Brasil Automóveis Ltda. As such, the bank's business
strategy and performance are closely tied to those of its auto manufacturing
The bank's unchanged baseline credit assessment (BCA) at ba3 reflects
the bank's historically better-than-market'
asset quality, supported by adequate credit risk management procedures.
Loan loss reserve remains high, providing ample coverage to problem
loans. Nevertheless, we expect that the coronavirus outbreak
will have a negative impact on Banco RCI's asset quality as business
closure and pullback in local consumption results in economic deceleration,
car sales decline and higher unemployment. Loan payment deferrals
may also mask asset quality metrics over the medium-term.
In the meantime, lower business volumes, combined with higher
credit and funding costs will weigh on RCI Brasil's profitability,
with revenues already limited by its monoline business model. In
March 2020, the bank's net income to tangible asset remained
stable at around 1.9%, primarily supported by higher
income from loans and lower operating and credit costs, which offset
lower results with leasing. The bank's results in Q1 reflected
the recovering activity early in the year and that has been cut short
by the sudden stop in the economy.
Similar to peers, the bank's wholesale and highly confidence sensitive
funding base remains a key rating constraint, together with the
low stock 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.
We note that the bank's capital base remains adequate to provide additional
protection against loan losses. Banco Santander (Brasil) S.A.
(SANB, Ba1 stable ba2) owns 39.9% of RCI Brasil's
shares. Therefore, RCI Brasil's capital ratios are
consolidated into SANB's prudential conglomerate for regulatory
purposes, although the bank's capital position is individually overseen
by both regulators and its controlling shareholders. 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 help preserve the bank's capital in the face of coronavirus outbreak'
effects on asset quality and profitability.
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 RCI 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
An upgrade in Banco RCI's supported ratings would occur following an upgrade
in RCI Banque ratings. Combined to this, a scenario of stronger
asset-quality indicators and profitability could also result in
upward rating pressure on Banco RCI's standalone BCA.
The bank's ratings could also 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. A downgrade
of the parent's ratings by multiple notches could be negative for
Banco RCI's ratings
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 RCI is 60.1% owned by RCI Banque in France and 39.9%
by Banco Santander (Brasil) S.A.. 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 1.4 billion and loans of BRL 12.2
billion in March 2020.
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M. Celina Vansetti-Hutchins
MD - Banking
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