TEXT - S&P affirms Banco Patagonia S.A. ratings

Fri Dec 14, 2012 1:40pm EST

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(The following statement was released by the rating agency)

Overview
     -- Argentina-based Banco Patagonia has maintained "adequate" business, 
risk and funding, and liquidity positions and "moderate" capital and earnings, 
in our view.
     -- We're affirming our global scale counterparty credit rating on Banco 
Patagonia S.A. at 'B-'. At the same time, we have assigned a 'B' short-term 
credit rating to the bank. 
     -- The negative outlook on the bank reflects the sovereign rating outlook 
on Argentina and the fact that we could lower the ratings on the bank if we 
lower the rating on the sovereign. 

Rating Action
On Dec. 14, 2012, Standard & Poor's Ratings Services affirmed its 'B-' 
counterparty credit rating on Banco Patagonia S.A., and we have assigned a 'B' 
short-term credit rating to the bank. The outlook remains negative.

Outlook
The negative outlook on the bank reflects the sovereign rating outlook on 
Argentina. If we downgrade Argentina, we could lower the ratings on all 
Argentina-based financial institutions that we rate at the same level as the 
sovereign. We rarely rate banks above the sovereign rating because they're 
very likely to be affected by changes in the national economy. Also, all 
financial institutions operating in Argentina could face indirect negative 
effects of a sovereign downgrade. We believe that a sovereign downgrade is 
normally associated with, or could lead to, weaker operating conditions for 
financial institutions, which would very likely erode their creditworthiness.

A worsening external position, mostly likely from financial outflows (perhaps 
combined with weakening terms of trade) or additional policy actions that 
further diminish Argentina's growth prospects could lead to a sovereign 
downgrade. On the other hand, actions that restore investor confidence on 
medium-term prospects for the economy (on the monetary or structural front), 
and thus reduce uncertainty over its external liquidity position, could lead 
us to revise the outlook to stable.

Rationale
Standard & Poor's bases its ratings on Banco Patagonia on its "adequate" 
business position, "adequate" risk position, "moderate" capital and earnings, 
"average" funding, and "adequate" liquidity (as our criteria define the terms).

The 'bb-' anchor draws on our Bank Industry Country Risk Assessment (BICRA) 
methodology and our view of the economic and industry risk in Argentina where 
Banco Patagonia operates. The indicative BICRA for Argentina is group '8', 
according to our criteria. One of the factors we base the BICRA score on is 
our evaluation of economic risk. Our economic risk assessment reflects our 
view that increasing inflation and weaker fiscal and external balances will 
continue to limit Argentina's policy flexibility. Increasing inflation affects 
the country's competitiveness and shortens the planning horizon for economic 
agents in the country. With regard to industry risk, we believe Argentine 
banks' banking system regulations are more relaxed than international 
standards, retail depositor confidence is weak, and domestic customer deposits 
are very short term. At the same time, the country has a narrow capital market 
and limited access to external debt capital markets.

Banco Patagonia maintains a good competitive position in the markets in which 
it operates, which contributes to our "adequate" view of its business 
position. Banco Patagonia has historically targeted the middle-income 
population and small and midsize business segments, with a focus on the 
interior of the country. However, we expect the bank to increase its lending 
to Brazilian companies operating in Argentina and Argentine companies with 
significant business with Brazilian entities following the acquisition of 
Banco Patagonia by Banco do Brasil S.A. (BBB/Stable/A-2) and to align with the 
parent's strategy. The bank is focused on servicing Brazilian entities 
operating in Argentina and providing specialized customer service to large 
companies and corporates. We consider that this increase in lending in a 
relatively new segment will not damage the bank's business stability, given 
Banco Patagonia's synergies with its strong parent, including its sound 
franchise and risk management. Banco Patagonia ranked 12th in the domestic 
financial system in terms of assets, with a 5.08% market share, in July 2012. 

Private banks, such as Banco Patagonia, will no longer pay the salaries of 
public employees after the government passed new regulation in July (those 
salaries will only be paid by Banco de La Nacion Argentina). The payment of 
salaries represented a significant source of funding for Banco Patagonia and 
other players in the industry and there will be less low-priced funding 
available for private banks. In addition, banks used the payment of the 
salaries as an opportunity to cross-sell other products, such as credit cards 
and personal loans. We expect the bank's synergies with its main shareholder 
to help mitigate the negative impact of this change.

Our "moderate" assessment of capital and earnings reflects Banco Patagonia's 
modest capital position, based on our expectation of a projected risk-adjusted 
capital (RAC) ratio of about 5.0%-6.0% in the next 18 months (using Standard & 
Poor's RAC framework). This assumes a base-case scenario that incorporates 
about 30% loan growth in 2012 and 20% on 2013, a slight decrease in net 
interest margins, and no dividend payout. The bank exhibited an excess of the 
minimum capital required by the regulator of $1.1 billion as of September 2012.

Banco Patagonia has adequate quality of capital, in our view, with common 
equity representing 100% of capital used for the RAC calculation. In addition, 
the banks' ROA compares strongly with its local peers', at 3.9% as of 
September 2012, and its earnings have been sustainable over time. The 
three-year average earnings buffer (including 2011 and our forecast for 2012 
and 2013) reached 1.7%, providing adequate earnings capacity to support 
continued growth while maintaining the current capitalization ratios.

Our risk position assessment for Banco Patagonia is "adequate." We consider 
the performance of Banco Patagonia's gross loan portfolio (about $15.0 billion 
as of September 2012) to remain satisfactory, based on our view that 
management has the capacity to manage the rising lending exposure risk. As of 
Sept. 30, 2012, the ratio of nonperforming assets was 1.1%--slightly higher 
than its 2011 levels, but still lower than the Argentine industry average of 
1.7%. In addition, net charge-offs have remained very low. We consider the 
bank's risk concentration to be adequate due to its geographic 
diversity--which we consider to be in line with the banking system--and its 
granular lending portfolio, with its 10 largest lending exposures representing 
about 6.3% of total exposures as of September 2012.

We view Banco Patagonia's funding profile to be in line with the industry. The 
bank has a relatively stable and diversified deposit base, which is its main 
funding source, with its top 10 largest deposits represented only 11.83% of 
total deposits as of September 2012. About 50% of the bank's deposits are 
sight (they can be redeemed at any time) deposits, which is comparable to the 
level in the banking system. In our view, the bank's liquidity is "adequate," 
due to the bank's high level of liquid assets. They represented 17.5% of total 
assets and 24.9% of total deposits as of September 2012.

Based on our group rating methodology for banks, we consider Banco Patagonia a 
moderately strategic subsidiary of Banco do Brasil S.A. The issuer credit 
rating on Banco Patagonia is three notches lower than the SACP because, in our 
view, Banco Patagonia doesn't meet the conditions under our bank criteria to 
be rated above the 'B-' sovereign rating on Argentina.


Ratings Score Snapshot
Issuer Credit Rating        B-/Negative/B

SACP                     bb-
 Anchor                bb-
 Business Position        Adequate (0)
 Capital and Earnings     Moderate (0)
 Risk Position            Adequate (0)
 Funding and Liquidity    Average and Adequate (0)

Support                   1
 GRE Support              0
 Group Support            1
 Sovereign Support        0

Additional Factors        -3

Related Criteria And Research
     -- Banks: Rating Methodology And Assumptions, Nov. 9, 2011
     -- Group Rating Methodology For Banks, Nov. 9, 2011
     -- Bank Industry Country Risk Assessment Methodology And Assumptions, 
Nov. 9, 2011
     -- Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011

Ratings List
Long-Term Rating Affirmed; Short-Term Rating Assigned
                                        To                 From
Banco Patagonia S.A.
 Counterparty Credit Rating             B-/Negative/B      B-/Negative/--

 (Caryn Trokie, New York Ratings Unit)
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