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Announcement:

Moody's maintains the Ba2 rating for Daycoval's reopening of 2024 senior notes

30 Jan 2020

New York, January 30, 2020 -- Moody's Investors Service (Moody's) has today announced that the long-term foreign currency senior unsecured debt rating of Ba2 assigned to the $350 million 4.25% five-year senior notes issued by Banco Daycoval S.A. remains unchanged following the reopening of the tranche. The reopening is for an additional $100 million to the notes originally issued in December 2019. The notes were issued under the existing $2 billion Euro Medium Term Note Programme, rated (P)Ba2, and are due 2024.

The outlook on the rating is stable.

RATINGS RATIONALE

Moody's explained that the foreign currency senior unsecured debt rating derives from Daycoval's Ba2 global local currency deposit rating, which, in turn, reflects the bank's baseline credit assessment (BCA) of ba2. The rating does not benefit from any uplift from systemic support considerations because of Daycoval's modest share of the deposits market in Brazil.

Daycoval's ba2 baseline credit assessment (BCA) reflects the bank's steady earnings generation, disciplined business and risk profiles that support superior asset quality compared to same sized peers, as well as strong capital ratios. Daycoval's loan book is focused on small and medium size companies (SME), largely collateralized, which has resulted in consistently low levels of non-performing loans, below the 3% system average problem loan to total loans ratio over the past four years. The bank's asset risk profile is also supported by a robust reserve coverage that in September 2019 corresponded to 5.3% of total loans. In addition, Daycoval maintains strong capital position, measured by Moody's as tangible common equity as a proportion of risk weighted assets (TCE/RWA), of 12.6%, which is above the median for its peer banks, adequate to support an expected increase in risk appetite in 2020 as the local economy recovers.

The ba2 BCA also acknowledges Daycoval's diversified asset mix with 30% of the portfolio composed by granular and secured payroll and auto loans, which have been drivers of recurring earnings stream through economic cycles. In the third quarter of 2019, Daycoval had reported robust profitability, with income to tangible assets at 2.69%, which is high compared to similar rated banks in Brazil. The bank's robust 36.2% loan expansion in the twelve months to September is well above the system's growth rate and reflects Daycoval's ability to serve its SME customer base with short-term, secured loans. For that reason, credit costs have been largely stable. However, a more competitive scenario in 2020, and the effect of low interest rates particularly on SME loans will likely pressure Daycoval's margins in the next quarters. Margins remained strong at around 10.44% as of September 2019, per Moody's calculation, but lower than the 11.9% in the same period in 2018, despite the higher loan volumes and lower cost of funding in the period.

Moody's believes Daycoval's exposure to environmental risks is low, consistent with its general assessment for the global banking sector. The bank's exposure to social risks is moderate, consistent with Moody's general assessment for the global banking sector. As well, governance risks are largely internal rather than externally driven. Moody's does not have any particular concerns with Daycoval's governance at this point, as the bank has historical demonstrated conservative risk management practices.

WHAT WOULD CHANGE THE RATING UP/DOWN

Upward rating pressure would depend on an upgrade of the sovereign rating, provided that the bank's standalone fundamentals, including its asset quality, profitability and capital, remain strong.

However, Daycoval's ratings could be downgraded if the sovereign rating is downgraded, because the bank's BCA is aligned to the sovereign rating. Downward pressure on the BCA could also arise from a substantial deterioration in the bank's asset quality that could hurt its capital and reserves, and/or if the bank's profitability weakens materially.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was Banks Methodology published in November 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Banco Daycoval S.A. is headquartered in São Paulo, and had consolidated assets in the amount of BRL32.43 billion and shareholders' equity of BRL3.74 billion as of 30 September 2019.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

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: 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

No Related Data.
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