Fitch Affirms Santander's Latin American Subsidiaries

Tue May 28, 2013 4:56pm EDT

Related Topics

(The following statement was released by the rating agency) BUENOS AIRES/MONTERREY, May 28 (Fitch) Fitch Ratings has affirmed all the ratings of Banco Santander (SAN)'s Latin American subsidiaries, following a similar action at the Spanish parent (see 'Fitch Affirms Santander's, BBVA's and CaixaBank's Ratings ', dated May 23, 2013 and available at ''). The Outlooks on the Long-term IDRs and National-scale ratings of the Mexican and Brazilian subsidiaries have been revised to Stable from Negative, while the Outlook on Banco Santander Chile (SAN Chile) remains Negative, aligned to that on the parent's IDRs. A list of the rating actions for each individual subsidiary follows at the end of this release. The revision of the Outlook of the Mexican and Brazilian subsidiaries to Stable from Negative is mostly driven by Fitch's perception that these ratings would not necessarily by affected by a moderate (one or two notches) potential downgrade of the parent's viability rating (VR), currently at 'bbb+'. The Outlook of SAN Chile remains Negative because its VR is already three notches above its parent's ratings, which is the typical widest uplift according to Fitch's criteria report 'Rating FI Subsidiaries and Holding Companies', published on Aug. 10, 2012. Since the ratings of the parent are currently on Negative Outlook, any downgrade would affect SAN Chile's ratings. Fitch believes that Latin America remains core to SAN. The parent benefits from the geographic diversification of its Latin American subsidiaries, which gives SAN the capacity to generate earnings internationally and make up for the muted results in Spain. SAN's international subsidiaries are self-funded. This helps SAN's liquidity and minimizes contagion risk, giving them the capacity to issue from different jurisdictions. Growth prospects for emerging markets have been revised down and they are not entirely immune to global economic trends, but it is expected that profits from these markets will continue to contribute significantly to the group's earnings. Some of SAN's subsidiaries in Latin America currently exhibit a similar or better intrinsic financial profile than the parent (measured by their VR's). This is the case for Banco Santander Chile (SAN Chile) and Banco Santander (Mexico) S.A. (SAN Mexico). Their IDRs, as well as those of Banco Santander (Brasil) S.A. (SAN Brazil), are driven by their respective viability ratings (VRs) and not by the expected support from its parent; although it is evident that such subsidiaries remain strategic assets for SAN. Fitch has also affirmed the Support Rating Floors (SRF) of these banks, given their systemic importance in their respective home markets and also considering the vested interests from the Brazilian, Chilean and Mexican sovereigns to preserve the health of their financial system. Fitch's SRF's indicate a level below which the agency will not lower the bank's Long-term IDRs. However, at present, the VRs of all the entities remain above their respective SRF as evidence of their good financial profiles. In general terms, all of SAN's rated subsidiaries in Latin America show robust financial conditions, strong local franchises, and self-funded natures mostly within their home markets. The subsidiaries also exhibit good profitability and capital adequacy, while not relying on their parent for day-to-day business, and while their management teams and Board of directors enjoy a high degree of operating independence. Also, the improved reputation, efficiency and monitoring of local regulators in Brazil, Chile, and Mexico, acts as sufficient ring-fencing protection in Fitch's view against any possible negative events that may originate from the parent and/or from their parent's home market. Also important is the fact that exposure of SAN' subsidiaries in Latin America to their parent is negligible and tightly controlled by stringent local regulations. Fitch acknowledges that the reputations of the parent and its subsidiaries in Latin America are somewhat interdependent and correlated. Hence, the ratings of the parent and its subsidiaries cannot be completely dissociated. In such cases, further downgrades at the parent level or changes in market perception concerning SAN's Latin American subsidiaries, may trigger further rating reviews of the latters. KEY RATING DRIVERS SAN Chile SAN Chile's IDRs and National Scale Ratings are driven by its VR of 'a+' and these do not factor any support from its parent, although it remains a strategically important subsidiary for SAN. SAN Chile's IDRs, National Ratings and VR reflect its market-leadership position and its strong franchise within Chile, whose economy continues to perform well. The ratings also reflect the bank's healthy asset quality, strong underlying profitability, albeit pressured in 2012, adequate funding capital position and independent management. SAN Chile's liquidity benefits from a sizeable, historically stable, and well-diversified retail deposit base. In addition, SAN Chile has significantly reduced refinancing risk and exposure to more price-sensitive institutional deposits by growing core deposits and building a liquidity cushion while maintaining access to capital markets without any apparent rise in funding costs. SAN Chile's stand-alone capital is adequate for its rating category and its liquidity position is strong, while its exposure to the Santander group is negligible and constrained by stringent local regulations. Fitch has affirmed SAN Chile's Support Rating (SR) SRF at '1' and 'A-', respectively. As the second largest bank in Chile, Fitch considers that there is an extremely high probability that the Chilean government (FC and LC IDRs by Fitch of 'A+'/'AA-'; Outlook Stable) will provide support, should it be required. SAN Brazil SAN Brazil's IDRs and National Ratings are driven by its current VR of 'bbb', which is one notch below its parent's VR rating ('bbb+'). SAN Brazil is a core subsidiary for SAN, having contributed around 26% of consolidated net income in 2012. SAN Brazil's VR reflects the challenges the bank faces with its asset quality and profitability that does not compare as well to its peers. The VR also reflects its especially strong capital base and its diversified funding supported by its large branch network and client base which enables it to remain independent in terms of funding from its parent. Fitch has affirmed the Support Rating (SR) at '2'. As the fifth largest bank by total assets in Brazil and with a deposit market share of approximately 8%, it is highly likely that the Brazilian government (FC and LC IDR 'BBB'/'BBB' by Fitch; Outlook Stable) will provide support, should it be required. As such Fitch rates SAN Brazil's Support Rating Floor at 'BBB-'. Santander Leasing S.A. Arrendamento Mercantil (SAN Leasing Brasil) Fitch has affirmed the National Ratings of SAN Leasing Brasil. The ratings are driven by potential support from SAN Brazil. Fitch views SAN Leasing Brasil as an integral part of SAN Brazil's franchise as it shares management, policies and strategy of SAN Brazil and as a result Fitch does not differentiate between the credit risk of the Brazilian subsidiaries. The national ratings of SAN Leasing's subordinated issuances are one notch below the National Ratings of SAN Brazil, as they incorporate Fitch's loss severity assumption in case of liquidation and the support capacity of its parent. SAN Mexico SAN Mexico's 'bbb+' Viability Rating does not consider any extraordinary support from its parent and reflects its growing franchise and robust competitive position, stable and solid overall profitability, which benefits from exceptionally strong efficiency levels. The ratings also reflect the bank's strong asset quality and loss absorption capacity through an adequate cushion of loan reserves and comfortable capitalization metrics; and the ample base of customer deposits, although reliance on current deposits compares unfavourably against its closest peers. SAN Mexico's Long and Short-term IDRs were affirmed at 'BBB+' and 'F2', respectively. These ratings are driven by its VR, as well as its National scale Long and Short-term ratings, which were also affirmed at 'AAA(mex)' and 'F1+(mex)', respectively. SAN Mexico's Support Rating Floor (SRF) was affirmed at 'BBB-' and reflects Fitch's opinion that given the bank's systemic importance as the third largest bank in Mexico (14% market share of the system's assets and deposits), the Mexican Government (FC and LC IDR's of 'BBB+' and 'A-', Stable Outlook) will highly likely provide support, if required. Casa de Bolsa Santander, S.A. de C.V. (CBSantander) The National Long and Short-term scale ratings of CBSantander were affirmed at 'AAA(mex)' and 'F1+(mex)', respectively. CBSantander is a core subsidiary of Grupo Financiero Santander Mexico (GFSM), whose credit quality is closely associated to SAN Mexico, its main operating subsidiary. CBSantander's ratings reflect the legal obligation of GFS to support its subsidiaries, as well as its core role to the Group. RATING SENSITIVITIES SAN Chile The Outlook of SAN Chile's Long-term IDR and National Long-term rating is Negative, mirroring that of SAN's ratings. A downgrade of SAN's ratings will likely drive a downgrade of SAN Chile's VR and IDRs. This reflects the inherent linkage of a subsidiary and its parent, as SAN Chile's IDR is currently three notches above the rating of its parent, which is the maximum Fitch considers prudent according to its rating criteria. In spite of its intrinsic strength, SAN Chile's VR could potentially be dragged down by a further deterioration of Santander, especially affecting its access or cost of funding, although this has not been the case so far. Downward pressure for SAN Chile's VR could also arise from a sustained pressure on profitability stemming from further rise in LLPs or from markedly lower liquidity or capitalization. More specifically, SAN Chile's VR could be downgraded if its ROAA consistently remains below 1.3%, its Fitch Core Capital to Weighted Assets ratio falls and is maintained below 9% together with asset quality deterioration and/or if the bank reduces significantly its liquidity cushion and maintains it well below its current levels. There is limited upside potential in the near future for SAN Chile's VR. SAN Chile's support rating or SRF could only be affected by a downgrade of Chile's sovereign IDRs, which is considered unlikely at the present time. SAN Brazil & Santander Leasing Fitch believes that if SAN Brazil is able to consistently improve the quality of its results, a movement that would need to include an overall improvement in asset quality that brings its asset quality ratios closer to its peers, the viability rating could be upgraded. If asset quality and profitability suffer a steep deterioration, impacting negatively its comfortable capital ratios, the VR could suffer a negative action. SAN Brazil's VR and IDRs, as well as the national-scale ratings of Santander Leasing, could be negatively affected by a multi-notch downgrade of its parent company. Considering the current support rating floor, and aided by the expectation of possible government support if it will be required, SAN Brazil IDR's will not be reduced below 'BBB-'. SAN Mexico SAN Mexico's VR and IDRs could be negatively affected by a multi-notch downgrade of its parent company's ratings. Also, a disordered asset growth, affecting the bank's stable operating ROA to levels below 1.5% and/or an increase in its impaired loan ratio to above 4% could result in a downgrade of the bank's VR, and therefore, of its IDRs. On the other hand, sustained improvements in the bank's funding profile and competitive position, together with an increased contribution from core customer deposits and improving risk and revenue diversification, could benefit the bank's ratings. CBSantander A potential downgrade of CBSantander will be driven by any potential changes on SAN Mexico's ratings, or changes in the legal framework that could alter the propensity of GFS to support them, scenario that seems unlikely at present. Fitch has affirmed the following ratings: SAN Chile: --Foreign and local currency long-term IDRs at 'A+'; Outlook Negative; --Foreign and local currency short-term IDRs at 'F1'; --Viability rating at 'a+'; --Support rating at '1'; --Support rating floor at 'A-'; --Long-term national rating at 'AAA(cl)'; Outlook Negative; --Short-term national rating at 'N1+(cl)'; --Senior unsecured bonds at 'A+' and national long-term rating 'AAA(cl)'; --USD5bln US Commercial Paper Programme at 'F1' --National long-term rating subordinated bonds at 'AA(cl)'; --National equity rating at 'Primera Clase nivel 1'. Banco Santander (Brasil): --Long-term foreign and local currency IDRs at 'BBB'; Outlook revised to Stable from Negative --Short-term foreign and local currency IDRs at 'F2'; --Viability rating at 'bbb'; --Support rating at '2'; --Support rating floor at 'BBB-'; --National Long-term rating at 'AAA(bra)'; Outlook revised to Stable from Negative; --National short-term rating at 'F1+(bra)'; Senior notes due 2015: --Long-term Foreign Currency at 'BBB'; Senior notes due 2016: --Long-term Foreign Currency rating at 'BBB'; Senior notes due 2017 --Long-term Foreign Currency rating at 'BBB'. Santander Leasing S.A. Arrendamento Mercantil: --National long-term rating at 'AAA(bra)'; Outlook revised to Stable from Negative; --National short-term rating at 'F1+(bra)'. 4th and 5th Debentures Issue --National long-term rating at 'AA+(bra) . Santander Leasing S.A. Arrendamento Mercantil (Ex-ABN AMRO Arrendamento Mercantil S.A.) - 4th, 5th and 6th Debentures Issue --National long-term rating at 'AA+(bra)' . Banco Santander (Mexico): --Long-term foreign and local currency IDRs at 'BBB+'; Outlook revised to Stable from Negative --Short-term foreign and local currency IDRs at 'F2'; --Viability Rating at 'bbb+'; --Support Rating at '2'; --Support Rating Floor at 'BBB-'; --Long-term senior unsecured global notes due 2022 at 'BBB+'; --National-scale long-term rating at 'AAA(mex)'; Outlook Stable --National-scale short-term rating at 'F1+(mex)'; --National-scale long-term rating for local senior unsecured debt issues at 'AAA(mex)'; --National-scale long-term rating for local issues of market linked securities at 'AAA(emr)(mex)'. Casa de Bolsa Santander: --National-scale long-term rating at 'AAA(mex)'; Outlook Stable; --National-scale short-term rating at 'F1+(mex)'. Contact: Primary Analyst (SAN Chile) Santiago Gallo Director +54-11-5235-8137 Fitch Argentina Calificadora de Riesgo S.A. Sarmiento 663 - piso 7 - C1041AAM Buenos Aires, Argentina Secondary Analyst (SAN Chile) Eduardo Santibanez Senior Director +56-2-499-33-07 Primary Analyst (SAN Brazil & Santander Leasing) Robert Stoll Director +1-212-908-9155 Fitch Ratings, Inc. One State Street Plaza New York, NY 10004 Secondary Analyst(SAN Brazil & Santander Leasing) Eduardo Ribas Senior Analyst +55-11-4504-2213 Primary Analyst (SAN Mexico and CBSantander) Monica Ibarra Director +52 81 8399 9150 Fitch Mexico SA de CV Prol. Alfonso Reyes 2612, Edificio Conexity Piso 8 Col. Del paseo Residencial 64920 Monterrey, N.L., Mexico Secondary Analyst (SAN Mexico and CBSantander) Alejandro Garcia, CFA Senior Director +52 81 8399 9146 Committee Chairperson Franklin Santarelli Managing Director +1-212-908-0739 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: Additional information is available at ''. Applicable Criteria and Related Research: --'Global Financial Institutions Rating Criteria' (Aug. 15, 2012); --'Rating FI Subsidiaries and Holding Companies'(Aug. 10, 2012); --'Assessing and Rating Bank Subordinated and Hybrid Securities' (Dec. 5, 2012); --'Securities Firms Criteria' (Aug. 15, 2012); --'National Ratings Criteria'(Jan. 19, 2011). Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Rating FI Subsidiaries and Holding Companies here Assessing and Rating Bank Subordinated and Hybrid Securities here Securities Firms Criteria here National Ratings Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.