RPT-Fitch views Banco BMG's 2Q'13 results as credit positive
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Aug 9 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings considers Banco BMG S.A.'s (Long-Term Foreign Currency Issuer Default Rating 'B') recently released 2Q'13 results a credit positive.
The figures showed favorable performance especially when compared to a year earlier. For the first half of 2013, the bank reported an adjusted net income figure of BRL286 million versus a BRL280 million loss for the same period in 2012.
The 2Q'13 result was equivalent to a healthy annualized ROAA of 2.6%. The bank saw a 45% yoy increase in new payroll deductible loans (known locally as 'Consignado').
While the bank still relies on asset sales, which, as of June 30, 2013, accounted for nearly 51% of its funding, a relevant portion of these sales were to Itau Unibanco S.A. following last year's funding agreement. Fitch Ratings viewed that agreement as very positive for BMG's core business over the next few years as it supports the bank with the funding it needs to generate good recurring earnings in the face of the strong competition in this niche. Further to asset sales and deposits, the bank also continues to diversify its funding sources through the use of special purpose funding vehicles known as 'FIDCs'. Another funding highlight was the greater use of 'Letra Financeiras' which enables the growth in long-term funding (average tenor of 3.5 years).
Banco BMG S.A.'s partnership with Itau Unibanco S.A. in Banco Itau BMG Consignado S.A. has generated BRL 9.2 million during the first half of 2013, and this JV is expected to perform at an even higher level given the strong demand and the strengths of its majority partner. The JV also recently purchased BMG Seguradora S.A. which was partially owned by the shareholders of Banco BMG. BMG Seguradora S.A. is expected to further grow the earnings capacity of the JV and thus will contribute to Banco BMG's revenues via BMG's 30% ownership share of the JV.
The bank continues to focus on its product niche and even though asset quality deteriorated from the levels shown a year earlier, the bank's asset quality remains satisfactory. The bank reported a good efficiency ratio of 32.7%. In addition to the further professionalization of its management, the bank is also expected to complete the transfer of its headquarters to Sao Paulo over the next 30 days.
Fitch views the above mentioned highlights and other recently announced results as a credit positive and expects the bank to continue reporting this positive trend in a sustained manner which should gradually result in an improved Fitch Core Capital Ratio ('FCC'). As stated in our ratings affirmation of March 22, 2013, a sustained recovery of recurring earnings and good asset quality ratios that yields an improvement of its FCC ratio closer to 6% could favorably impact the bank's viability rating. As of June 30, 2013, BMG's FCC ratio improved to 5%. The ability of the bank to sustain current positive results and a prudent dividend and growth strategy may pave the way to achieve a less compromised capitalization.
Soon to be headquartered in Sao Paulo, Banco BMG S.A. is a mid-sized, wholesale bank, which is a market leader in paycheck deductible loans. The bank is privately owned by Mr. Flavio Pentagna Guimaraes and his family.
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