Banco RCI Brasil S.A.

Transcription

1 CREDIT OPINION Banco RCI Brasil S.A. Update to credit analysis Update Summary RATINGS Banco RCI Brasil S.A. Domicile Parana, Brazil Long Term CRR Ba1 Type LT Counterparty Risk Rating - Fgn Curr Not Assigned Long Term Debt Not Assigned Long Term Deposit Ba3 Type LT Bank Deposits - Fgn Curr Stable The Baseline Credit Assessment (BCA) of ba3 assigned to Banco RCI Brasil S.A. (RCI Brasil) reflects its captive finance operations of automakers Renault and Nissan in Brazil, as well as the inherently low risk of the bank's secured vehicle funding loan book. The bank's BCA is, however, constrained by its reliance on wholesale funding, comprised of debt issued in the domestic market and interbank deposits, and by its monoline business model. We assign a National Scale rating of Aaa.br and long-term global local-currency deposit rating of Ba1 to RCI Brasil, which incorporates a two-notch uplift from its BCA owing to our assessment of a high likelihood of support deriving from the bank s French-based parent, RCI Banque (Baa1 stable, ), which owns 6.1% of the bank; Banco Santander Brasil S.A. owns the remaining 39.9% of RCI Brasil. Exhibit 1 Rating Scorecard - Key Financial Ratios Banco RCI Brasil S.A. (BCA: ba3 ) Please see the ratings section at the end of this report for more information. The ratings and outlook shown reflect information as of the publication date. 7% 12% 6% 1% 5% 8% 4% 6% 3% 4% 2% 2% Contacts Farooq Khan Analyst farooq.khan@moodys.com Alexandre Albuquerque AVP-Analyst alexandre.albuquerque@moodys.com Rafael B Amaral Associate Analyst rafael.amaral@moodys.com CLIENT SERVICES Americas Asia Pacific Japan EMEA Median ba3-rated banks 14% 2.2% 1.8% 63.2% 3.5% % 1% % Asset Risk: Problem Loans/ Gross Loans Capital: Profitability: Net Funding Structure: Liquid Resources: Liquid Tangible Common Income/ Tangible Market Funds/ Banking Assets/Tangible Equity/Risk-Weighted Assets Tangible Banking Assets Banking Assets Assets Solvency Factors (LHS) Source: Moody's Financial Metrics Liquidity Factors (RHS)

2 Credit strengths» Fully aligned integral part of Renault and Nissan Group's strategy and operations in Brazil» Low delinquency levels from secured low-risk vehicle loans and conservative underwriting standards in new car financing» Adequate capital ratios following the formation of RCI Brasil Credit challenges» Funding is mainly derived from debt issued in local market (Letras Financeiras and Letras de Cambio), securitizations (FIDCs) and interbank deposits mainly from Banco Santander.» Monoline operations provide weak revenue diversification, which constrains the issuer's franchise. The outlook on RCI Brasil's ratings is stable. The outlook on the bank's foreign-currency deposit rating was changed to stable on 16 March 217 from negative following a change in the outlook on Brazil's bond rating announced on 15 March 217. Factors that could lead to an upgrade Improved profitability metrics and asset-quality indicators over the next months could result in positive pressure on RCI Brasil's standalone BCA. A move to diversify the bank's funding base and reduce concentration could also provide upward pressure on its rating. Factors that could lead to a downgrade A weakening of RCI Brasil's asset-quality indicators and profitability resulting from continued deterioration in the economic scenario would have a negative effect on the BCA. A downgrade of the parent's standalone BCA would lead to a downgrade of the bank's global local-currency deposit rating. Key indicators Exhibit 2 Banco RCI Brasil S.A. (Consolidated Financials) [1] Total Assets (BRL billion) Total Assets (USD billion) Tangible Common Equity (BRL billion) Tangible Common Equity (USD billion) Problem Loans / Gross Loans (%) Tangible Common Equity / Risk Weighted Assets (%) Problem Loans / (Tangible Common Equity + Loan Loss Reserve) (%) Net Interest Margin (%) PPI / Average RWA (%) Net Income / Tangible Assets (%) Cost / Income Ratio (%) Market Funds / Tangible Banking Assets (%) Liquid Banking Assets / Tangible Banking Assets (%) Gross Loans / Due to Customers (%) , , CAGR/Avg ,22.85 [1] All figures and ratios are adjusted using Moody's standard adjustments [2] Basel III - fully-loaded or transitional phase-in; LOCAL GAAP [3] May include rounding differences due to scale of reported amounts [4] Compound Annual Growth Rate (%) based on time period presented for the latest accounting regime [5] Simple average of periods presented for the latest accounting regime. [6] Simple average of Basel III periods presented Source: Moody's Financial Metrics This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on for the most updated credit rating action information and rating history. 2

3 Data in the Key Indicators table from refers to the leasing company Companhia de Arrendamento Mercantil RCI Brasil S.A., before its name was changed to Banco RCI Brasil S.A Detailed credit considerations Asset quality to remain high, given secured granular exposures RCI Brasil's assigned score of ba2 for Asset Risk reflects the inherently low risk of its granular loan book, which has remained low relative to the system during Brazil's recession, despite the bank's recent deleveraging. As of December 217, RCI Brasil reported nonperforming loans (NPLs) of 1.3%, down from 1.9% reported by the finance company in 216, and significantly lower than systemwide ratios of over 3.3%. RCI Brasil maintains conservative credit standards for approving loans, and management's close monitoring of operational risks have contributed to maintaining delinquency at low levels. By requiring down payments of up to 4% for new loans, the bank eliminates potentially weak credit holders. In terms of risk management, RCI Brasil follows guidelines established by the French-based parent RCI Banque and by Banco Santander. The bank's compliance practices also mirror those of RCI Banque, including the use of systems that are linked to the parent. RCI Brasil uses a credit score developed by Banco Santander; however, credit evaluation is realized by local management, which uses methods formulated by its French parent to approve loan operations. Capital will remain adequate We assign RCI Brasil a Capital score of baa1, which reflects its sufficient level of solvency, as shown by the bank's ratio of adjusted tangible common equity to risk-weighted assets of 15.5% as of December 217 (Moody's-calculated). Historically high, the finance company's total capital ratio stood at 18.5% in December 217, a ratio well above the minimum regulatory capital requirement of 11%. In January 216, as a result of the incorporation of the finance company by RCI Brasil, the bank s equity was raised to BRL1.4 billion from BRL814 million as of December 217; the bank continued reporting a high amount of shareholder's equity, totaling BRL1.1 billion. We consider the bank's capital to be adequate, particularly considering the limited growth we expect in its loan book in light of the lagging effects that Brazil's recession will have on demand for new vehicles in 218 and 219. Banco RCI will continue to be fully consolidated by Banco Santander (Brasil), even though it is not the majority shareholder, owning 39.89% of the bank's capital. Profitability to be constrained by low loan growth and sticky provision expenses The ba2 score assigned to the bank's Profitability reflects the challenges RCI Brasil faces to maintain its historically adequate levels in light of low expected loan growth and sticky credit costs. RCI Brasil's franchise is intrinsically linked to the operation of automakers Renault and Nissan, which allows the bank to benefit from discounts and subsidies offered by the carmakers. Conversely, as a result of being a captive finance operation, RCI Brasil has revenue that presents low diversification and is originated from lending operations with consumers to finance the acquisition of vehicles, working capital financing to car dealers (floor plan financing) and also leasing. In 217, the bank reported a net income of BRL186 million, which corresponds to a ratio of net income to tangible assets of 1.8%. High reliance on market funding, with limited liquid asset holdings RCI Brasil's caa1 score for Funding Structure stems from its high reliance on confidence-sensitive market funding, which stood at 57.5% of its tangible banking assets as of December 217, and acts as challenge to its credit profile. In recent years, the finance company diversified its funding investor base and structure away from just bank deposits, and issued debt in the local market in the form of Letras Financeiras and Letras de Câmbio. As of December 217, around 75% of its total funding was made up by these two funding sources, with the remaining 25% in the form of interbank deposits. These deposits are also mainly provided by the bank's minority shareholder, Banco Santander, which was responsible for roughly 6% of RCI Brasil's deposits as of December 217. Although diversification efforts have been positive for the bank in terms of market access, its reliance on market funding from confidence-sensitive institutional investors and depositor concentration remains particularly elevated versus its peers. In addition, the 3

4 bank holds only a very low level of liquid assets, equivalent to 5.1% of tangible banking assets, which serves as a very low buffer against its market funding reliance. Qualitative adjustments RCI Brasil has a narrow and specific monoline business model with no product diversification. In our view, the lack of business diversification adds more volatility to both the bank's asset risk and earnings structure compared with more diversified banks. To reflect this increased risk, we assign a qualitative adjustment of -1 for business diversification to RCI Brasil. RCI Brasil's rating is supported by Brazil's Moderate- Macro Profile Brazil's Moderate- Macro Profile reflects the country's large and diversified economy, strong international reserves and the improved effectiveness of monetary policy. However, the country's economic performance remains weak following two years of recession. Following an aggressive expansion in lending, particularly at the public-sector banks, which led to concerns of a possible credit bubble, lending has been contracting steadily since midyear 216 and asset risks have remained relatively contained despite the depth and length of the country's recession. The slowdown in lending has also limited banks' need for market funding. Although governmentowned banks account for a 56% share of the loan market, their growth rate has been consistently declining, which will help reduce pricing distortion created by their previous loose lending policies. Notching considerations In the absence of a bail-in resolution regime framework in Brazil, the ratings of subordinated debts, bank hybrids and contingent capital securities follow the Additional Notching Guidelines, as per the global Banks rating methodology. In these cases, the approach takes into account other features specific to debt classes, resulting in additional notching from the Adjusted BCA of the issuer. Affiliate support In applying the Joint Default Analysis, RCI Brasil's Ba1 local-currency deposit rating benefits from a two-notch uplift from the bank s standalone BCA of ba3. This uplift reflects our assessment of a high likelihood of support from its parent, RCI Banque, based on the strategic focus shared between the parent and the bank. Government support We believe there is a low likelihood of government support for RCI Brasil's rated deposits, which reflects the bank's small share of deposits and assets in Brazil's banking system. Counterparty Risk (CR) Assessment CR Assessments are opinions of how counterparty obligations are likely to be treated if a bank fails and are distinct from debt and deposit ratings in that they (1) consider only the risk of default rather than both the likelihood of default and the expected financial loss suffered in the event of default, and (2) apply to counterparty obligations and contractual commitments rather than debt or deposit instruments. The CR Assessment is an opinion of the counterparty risk related to a bank's covered bonds, contractual performance obligations (servicing), derivatives (for example, swaps), letters of credit, guarantees and liquidity facilities. RCI Brasil's CR Assessment is positioned at Baa3(cr) and Prime-3(cr) The CR Assessment is one-notch above the bank's Adjusted BCA of ba1, and, therefore, above the deposit rating of the bank, reflecting our view that Banco RCI's probability of default is lower at the operating level than of deposits. The CR Assessment of RCI Brasil does not benefit from government support because it is not incorporated in the bank's deposit ratings. About Moody's Bank Scorecard Our scorecard is designed to capture, express and explain in summary form our Rating Committee's judgment. When read in conjunction with our research, a fulsome presentation of our judgment is expressed. As a result, the output of our scorecard may materially differ from that suggested by raw data alone (though it has been calibrated to avoid the frequent need for strong divergence). The scorecard output and the individual scores are discussed in rating committees and may be adjusted up or down to reflect conditions specific to each rated entity. 4

5 Rating methodology and scorecard factors Exhibit 3 Banco RCI Brasil S.A. Macro Factors Weighted Macro Profile Moderate - Factor 1% Historic Macro Ratio Adjusted Score Solvency Asset Risk Problem Loans / Gross Loans Capital TCE / RWA Profitability Net Income / Tangible Assets Credit Trend Assigned Score Key driver #1 Key driver #2 Expected trend 2.2% ba2 Sector concentration baa1 Risk-weighted capitalisation 1.8% baa2 ba2 Earnings quality Combined Solvency Score Liquidity Funding Structure Market Funds / Tangible Banking Assets 63.2% caa2 caa1 Extent of market funding reliance Liquid Resources Liquid Banking Assets / Tangible Banking Assets 3.5% caa2 caa2 Stock of liquid assets Combined Liquidity Score Financial Profile Business Diversification Opacity and Complexity Corporate Behavior Total Qualitative Adjustments Sovereign or Affiliate constraint: Scorecard Calculated BCA range Assigned BCA Affiliate Support notching Adjusted BCA Instrument class Counterparty Risk Assessment Deposits caa2 Loss Given Failure notching 1 caa1 ba Ba2 ba2-b1 ba3 2 ba1 Additional Preliminary Rating Assessment Notching (cr) ba1 Government Support notching Local Currency Rating Baa3 (cr) Ba1 Foreign Currency Rating -Ba3 [1] Where dashes are shown for a particular factor (or sub-factor), the score is based on non-public information. Source: Moody's Financial Metrics Ratings Exhibit 4 Category BANCO RCI BRASIL S.A. Counterparty Risk Rating -Fgn Curr Counterparty Risk Rating -Dom Curr Bank Deposits -Fgn Curr Bank Deposits -Dom Curr NSR Bank Deposits Baseline Credit Assessment Adjusted Baseline Credit Assessment 5 Moody's Rating Stable Ba1/NP Baa3/P-3 Ba3/NP Ba1/NP Aaa.br/BR-1 ba3 ba1

6 Counterparty Risk Assessment Baa3(cr)/P-3(cr) ULT PARENT: RENAULT S.A. Issuer Rating Senior Unsecured -Dom Curr Commercial Paper -Dom Curr Other Short Term -Dom Curr Positive Baa3 Baa3 P-3 (P)P-3 PARENT: RCI BANQUE Counterparty Risk Rating Bank Deposits Baseline Credit Assessment Adjusted Baseline Credit Assessment Counterparty Risk Assessment Senior Unsecured Subordinate MTN -Dom Curr Commercial Paper Other Short Term -Dom Curr Positive A3/P-2 Baa1/P-2 A3(cr)/P-2(cr) Baa1 (P)Ba1 P-2 (P)P-2 Source: Moody's Investors Service 6

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8 CLIENT SERVICES 8 Americas Asia Pacific Japan EMEA