December 19, 2012 / 6:01 PM / 5 years ago

TEXT-Fitch affirms Banco Bonsucesso ratings, outlook negative

Dec 19 - Fitch Ratings has affirmed all ratings for Banco Bonsucesso S.A.
(Bonsucesso) as follows:

--Long-term Foreign and Local Currency IDRs (Issuer Default Ratings) at 'B+';
Outlook Negative;
--Short-term Foreign and Local Currency IDRs at 'B';
--Viability Rating at 'b+';
--Support Rating at '5';
--Support Rating Floor at 'No Floor';
--Long-term National Rating at 'BBB+(bra)'; Outlook Negative;
--Short-term National Rating at 'F2(bra)'.

The Rating Outlook for Bonsucesso's long-term IDRs (foreign and local currency)
remains Negative. The Negative Outlook reflects Bonsucesso's weak albeit
improving profitability and tight capital base. For 2013, Fitch expects
Bonsucesso to face relevant challenges, among which are the need to continue to
readjust to a new business environment, operating with a leaner structure and
with lower results. The development of the funding structure, with costs more
compatible with its operating profile, remains as the greatest challenge for the
bank's growth.

Fitch continues to monitor the advances of the bank towards the recovery of its
profitability and preservation of its capital adequacy. If the bank is not able
to continue the recovery of its profits and deliver an operational ROAA of at
least 1.5% during 2013, while its Fitch core capital ratio decreases to below 9%
and/or there is a sustained deterioration in delinquency indicators, the ratings
could be downgraded in the next 12 months.

However, if Bonsucesso is able to continue to improve its profitability ratios,
as seen in the last two quarters, while preserving its Fitch Capital Ratio and
asset quality, Fitch may revise the bank's Outlook to Stable.

Bonsucesso's IDRs and National Ratings are driven by its Viability Rating. This
reflects the institution's experience in the competitive payroll deductible loan
segment. The ratings also portray the relatively modest size of the bank, the
low Fitch core capital ratio and the fact of Bonsucesso being a niche bank with
large concentrations and more susceptible to economic fluctuations.

The bank has been able to reverse the loss in the first quarter of 2012 and
presented ROE of acceptable 7.4% in the first nine months of 2012. This was due
to increased credits in the balance sheet and lower funding costs and
administrative expenses, even without any impacts from revenue anticipation. In
September 2012, the auditor had a few qualifications in relation to expense
deferrals, although such procedure follows Central Bank guidance. Without
considering the deferral, the bank would have presented lower results in the
first nine months of 2012.

Payroll and deductible lending has continually faced intense competition from
large banks. To by-pass this situation, Bonsucesso has limited its focus to its
most profitable agreements and boosted its volume of payroll deductible loans
via credit cards, where competition is lower because only a few banks offer the
product. Furthermore, the bank is launching a series of new products and
maintains its operation in the middle market.

In 2013, Bonsucesso is expected to maintain the funding via loan sales to banks
and/or receivables-backed investment funds (FIDCs), although in lower volumes
than in the past. Fitch also believes that the bank may use its special
guaranteed time deposit II (DPGE II) limit, which offers more attractive funding
costs, although assets would need to pledged as collateral to the Creditor
Guarantor Fund (FGC). That said, an intensive use of this secured funding source
(DPGE II) may result in an undesired encumbrance of Bonsucesso's balance sheet,
which may negatively affect the expected recovery of unsecured creditors in case
of stress, which is a similar situation to the other banks that may use this
secured funding facility in an extensive manner. At the moment, the bank plans
to use this facility moderately, and this plan is neutral to its ratings.
Bonsucesso continues to use nearly all of its limit with the long-term DPGE I,
which favors its term matching and adequate liquidity, but the future growth of
the DPGE I facility is limited, as it ends in 2016.

Fitch core capital ratio remained low, around 9.5% in September 2012. The
issuance of subordinated debt, considered as Tier 2 regulatory capital, is not
included in this calculation, although Fitch recognizes the benefits from this
additional funding source, with good maturity tenors. Given the growth
expectations and the likelihood that the profits will be modest, Bonsusesso's
capital adequacy ratios will need to be enhanced, so that the bank can manage
growth and generate further cushions to cover unexpected losses.

As with other small- and medium-sized banks, Bonsucesso has registered
deterioration in its credit quality ratios since 2011, mainly in the middle
market portfolio. Until the third quarter of 2012, the indicators were slightly
better, but still demand attention, despite the reduction in the corporate

Controlled by the family Pentagna Guimaraes, Bonsucesso originated in 1992 with
the creation of Bonsucesso Financeira, transformed into a multiple bank in 1997.

Additional information is available at ''. 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:
--'National Ratings Criteria' (Jan. 19, 2011);
--'Global Financial Institutions Rating Criteria,' (Aug. 15, 2012).

Applicable Criteria and Related Research:
National Ratings Criteria
Global Financial Institutions Rating Criteria

Our Standards:The Thomson Reuters Trust Principles.
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