Fitch Reviews the Ratings of Four Brazilian Small and Mid-Sized Banks

Wed Sep 3, 2014 4:32pm EDT

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(The following statement was released by the rating agency) SAO PAULO/RIO DE JANEIRO/NY, September 03 (Fitch) Fitch Ratings has concluded its review of four small and medium-sized Brazilian banks: Banco Industrial do Brasil S.A. (BIB), Banco Indusval S.A. (BI&P), Banco Sofisa S.A. (Sofisa) and Banco Triangulo S.A. (Tribanco). A complete list of the rating actions can be found at the end of this press release. The small and medium-sized Brazilian banks reviewed are institutions with total assets that range from BRL1 billion to BRL10 billion. All of these banks have relevant concentration on the liabilities side, which is compensated by adequate asset liability management (ALM) practices, as they show sound gap management and good liquidity. These banks have different characteristics: --BIB and Sofisa have a long-term well-defined strategy with a focus on lending to small and medium-sized enterprises (SMEs). --Tribanco has concentrated its strategic goals on leveraging the client relationship built under Martins Group's (a related company) client network. --BI&P is implementing a turnaround in its strategies, aiming to revamp its profitability and strengthen its franchises after erratic performances over the last periods. For further details of these entities, as well as for regulatory information, please view individual rating action commentaries, published today and available in Fitch's websites at www.fitchratings.com and www.fitchratings.com.br. KEY RATING DRIVERS BIB BIB's ratings were affirmed. The ratings reflect the bank's stable risk profile, adequate and stable performance, good asset quality, liquidity and capitalization. This is supported by BIB's consistent focus on small and medium-sized businesses, its risk culture and the historically solid quality of its assets, as well as adequate liquidity. These factors are offset by the bank's small size, its relatively modest profitability and the asset and liability concentrations inherent to its business model. BI&P BI&P's long-term national rating was downgraded to 'BBB-(bra)' from 'BBB(bra)'. The downgrade reflects the fact that the new business model developed since 2011, with the admission of new shareholders, has not produced recurring and consistent results yet, which negatively affected the bank's capitalization level. Fitch Core Capital ratio (FCC), which was at comfortable 17.57% in December 2010, fell gradually, reaching 11.63% in June 2014, albeit the BRL201 million capital increase in 2011. Sofisa Sofisa's ratings were affirmed. The ratings reflect its conservative approach, high capitalization and prudent liquidity, besides the good quality of assets since 2013. The ratings reflect, however, also the fact that it is a niche bank with typical concentrations, particularly in funding, and low operating results since 2009. Tribanco Tribanco's ratings were affirmed. The ratings reflect the evaluation that the bank is a strategic part of Group Martins, operating on an integrated basis with the main company of the group, Martins Comercio e Servicos de Distribuicao S.A. (Martins; long-term national rating 'A(bra)'/ Outlook Stable). Such evaluation factors in the strong operational integration and synergies between these two entities. The bank has contributed with around 40%-45% of the group's results. The ratings also reflect its focus on the group's chain, increasing experience in its operating segment and healthy financial standing, based on good profitability, comfortable capitalization level and prudent liquidity management, in addition to a stable funding base, with adequate cost. RATING SENSITIVITIES BIB A potential upgrade in BIB's IDRs would be contingent on a higher diversification of its funding, product mix and an expansion of its operations that could reduce concentration on both the asset and liability side, resulting in a more robust profitability. Should BIB be able to reduce the difference that separates the bank from its peers in terms of performance and concentration jointly with an enhancement of its overall franchise, its ratings could be positively affected. Ratings could be negative affected by a deterioration in the bank's asset quality ratios, with a subsequent decline in its performance (operational ROAA below 1%) and a reduction in the bank's capitalization position (FCC ratio below 13%). BI&P The rating can be downgraded in case the FCC ratio declines to less than 10% and the institution continues to report losses. On the other hand, the rating can be upgraded in case BI&P reports more stable capitalization ratios stemming from the generation of recurrent and sustainable operating results and asset quality under control (credit indicators between D-H equal or below 5% of the total portfolio). Sofisa The consistent improvement in performance (operating income / average assets above 1.3%) and the profile of the funding with reducing DPGEs, since the bank maintains the current indicators of asset quality, capitalization and liquidity, could raise the ratings. On the other hand, a further worsening of the results, coupled with the deterioration in credit quality and capitalization (FCC ratio below 12%), could lead to a rating downgrade. Tribanco Given the strong operating integration, the bank's ratings are normally in line with the rating of the commercial arm, which limits the upgrading potential, based on improved results or on Tribanco's expansion. Any changes to Martins' ratings can lead to similar changes to the bank's ratings. Fitch has taken the following rating actions: BIB: -- Foreign and Local Currency LT IDRs affirmed at 'BB-'; Outlook Stable; -- Foreign and Local Currency Short-Term IDRs affirmed at 'B'; -- Viability Rating affirmed at 'bb-'; -- Long-Term National rating affirmed at 'A(bra)'; Outlook Stable; -- Short-Term National rating affirmed at 'F1(bra)'; -- Support Rating affirmed at '5'. -- Support rating Floor 'NF'; BI&P: -- Long-Term National rating downgraded to 'BBB-(bra)' from 'BBB(bra)'; Outlook Stable; -- Short-Term National rating affirmed at 'F3(bra)'. Sofisa: -- Long-Term National rating affirmed at 'A-(bra)'; Outlook Stable; -- Short-Term National rating affirmed at 'F2(bra)' . Tribanco: -- Long-Term National rating affirmed at 'A-(bra)`; Outlook Stable; -- Short-Term National rating affirmed at 'F2(bra)' . Contact: Primary Analyst (BI&P, Tribanco) and Secondary Analyst (BIB) Silvia Medici Director +55-11-4504-2218 Fitch Ratings Brasil Ltda. Alameda Santos, 700 - 7 andar - Cerqueira Cesar -Sao Paulo - SP Primary Analyst (BIB) and Secondary Analyst (Sofisa and Tribanco) Eduardo Ribas Director +55-11-4504-2213 Primary Analyst (Sofisa) Pedro Gomes Director +55 11 4504-2604 Secondary Analyst (BI&P) Esin Celasun Director +55 21 4503-2626 Committee Chairperson Franklin Santarelli Managing Director +1-212-908-0739 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available at 'www.fitchratings.com'. 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. 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