TEXT-Fitch assigns Tanner Servicios Financieros international ratings
Nov 15 - Fitch Ratings has assigned the following International ratings to Tanner Servicios Financieros S.A. (Tanner): --Long-Term Issuer Default Rating 'BBB-'; --Short-Term Issuer Default Rating 'F3'; --Local Currency Long-Term Issuer Default Rating 'BBB-'; --Local Currency Short-Term Issuer Default Rating 'F3'; Tanner's ratings reflect its solid and stable financial performance throughout the economic cycles, increased income diversification, and the positive long-term perspectives in the different segments where it operates. Credit risk ratios are low and controlled; loan portfolio is relatively short term (factoring facilities represent around 43% of total loans) and shows no debtor concentrations. Also, even when funding is wholesale and relatively concentrated in nature, is composed by a healthy mix of bank financing lines and debt capital market issuances, while asset and liability management is prudent in terms of tenors, yields and currency. Tanner capital position is considered adequate, debt levels show a decreasing trend since 2007; while a recent capital injection will help to fund future expected growth and maintain adequate leverage levels. Tanner's ratings are limited by its relatively small size and relatively narrow business model that results in concentrations on its operations and revenue sources. Also, recent fast growth will require more seasoning of its lending exposures that may result in some asset quality pressures. A more moderate loan growth and the preservation of its historic asset quality trends will bode well for its financial profile. The Rating Outlook is Stable. However, a sustained reduction of Tanner's performance, and or unexpected deterioration of its asset quality that dampens the entity's capital position would trigger a negative rating action. Further diversification of its business model that brings diversified income may sustain positive rating actions. Tanner's performance has shown an ability to face expected and unexpected risks throughout the economic cycles. Since 2006 it has been expanding asset and income diversification significantly in markets different to its historic niche. Nevertheless, in Fitch's opinion, such a trend will need to be closely monitored in order to preserve historic asset quality ratios. Even when growth prospects remains solid in Chile, the recent fast loan growth will require a more prudent approach going forward in order to limit possible risks due fast loan growth; a challenge Tanner management is well aware off. Asset quality is adequate and credit risk is low and controlled. The portfolio is sufficiently diversified and the entity, in Fitch's view, has a good credit risk management control, with +90 days delinquency (installments in automotive loans and leasing) accounting for 1.42% of the loan portfolio as of June 12 (average of 1.07% for the past 4 years), +90 days delinquency (unpaid balance) accounting for 2.67%, with a 1.35x reserves coverage. Nevertheless, the recent loan expansion, especially in the auto segment, have not been tested under a sustained negative operating environment, although, current stock of loan loss provisions and its healthy income generation may provide some room of maneuver under such conditions. Similar to other non-bank financial institutions, Tanner funds its operations with a wholesale funding; a mix of bank lines (national and international) and short- and long-term debt issuances in the capital market. Such issuances are well structured in terms of tenors and yields, while it's continuous and active presence in the banking and capital markets enhances the strength of this funding source. Bank lines are diverse for an entity of this size, and the tenor of such lines are well balanced with the assets it funds. Tanner's asset and liability management is good and is coupled with ample liquidity ratios. The average tenor of its assets (20.2 months) moderately exceeds the average tenor of its liabilities (14 months), which is considered prudent given the non-retail nature of its funding and the possible exposure to changes on market sentiment due idiosyncratic risks or systemic risks that may affect non-bank financial institutions. Tanner's liquidity risk is controlled using a high numbers of liquidity metrics that include fragmentations of maturities, liquidity reserves, stress scenarios simulations, etc. The short-term nature of the factoring portfolio may act as an additional source of liquidity in case of stress. Tanner's capital metrics are good and exhibit a decreasing leverage. Prudent capitalization policies have yielded significant improvement on Tanner's leverage and capitalization ratios. A recent capital injection of USD 40 million will help to fund future loan expansion and preserve capital flexibility. Current liabilities to equity ratio of 4.8x as of June 2012 will temporarily decrease due the aforementioned capital injection, but will likely back up as soon new capital is deployed and loan demand remains robust. Tanner management expected that the liabilities to capital ratio will not exceed 6x, well below current covenants on some its debt commitments. Established in 1993, Tanner is one of the largest no bank financial institution in Chile (USD 829.6 million in total assets and USD142.6 mln in equity as of June 2012) with a market share of around 9% in the factoring industry granted by the financial institutions that compose Chilean association of factoring enterprises (ACHEF). Tanner's loan portfolio is composed mainly by factoring loans (43%), car loans (42%) and leasing operations (13%). Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable Criteria and Related Research: --'Global Financial Institutions Rating Criteria' (Aug. 15, 2012); --'Finance & Leasing Companies Criteria' (Dec. 12, 2011); --'National Ratings Criteria' (Jan. 19, 2011); --'Evaluating Corporate Governance' (Dec. 13, 2011). Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria National Ratings Criteria Evaluating Corporate Governance
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