Credit Opinion: Banco Macro S.A.

Transcription

1 Credit Opinion: Banco Macro S.A. Global Credit Research 03 Dec 2015 Buenos Aires, Argentina Ratings Category Outlook Bank Deposits Fgn Curr Bank Deposits Dom Curr NSR Bank Deposits Baseline Credit Assessment Adjusted Baseline Credit Assessment Counterparty Risk Assessment Senior Unsecured NSR Senior Unsecured Subordinate NSR Subordinate Banco del Tucuman S.A. Outlook Bank Deposits Fgn Curr Bank Deposits Dom Curr NSR Bank Deposits Baseline Credit Assessment Adjusted Baseline Credit Assessment Counterparty Risk Assessment Moody's Rating Positive(m) Caa2/NP Caa1/NP Baa1.ar/ caa1 caa1 B3(cr)/NP(cr) Caa1 Baa1.ar Ca Ca.ar Positive(m) Caa2/NP Caa1/NP Ba2.ar/ caa1 caa1 B3(cr)/NP(cr) Contacts Analyst Phone Maria Valeria Azconegui/Buenos Aires Fernando Albano/Buenos Aires M. Celina Vansetti/New York City Christian Pereira/Buenos Aires Key Indicators Banco Macro S.A. (Consolidated Financials)[1] [2]9 15 [2]12 14 [3]12 13 [3]12 12 [3]12 11 Avg. Total Assets (ARS million) 95, , , , ,442.1 [4]23.2 Total Assets (USD million) 10, , , , ,628.7 [4]1.3 Tangible Common Equity (ARS million) 13, , , , ,395.5 [4]32.3 Tangible Common Equity (USD million) 1, , , , ,021.3 [4]8.7 Problem Loans / Gross Loans (%) [5]1.8 Tangible Common Equity / Risk Weighted Assets (%) [6]12.8 Problem Loans / (Tangible Common Equity + Loan Loss Reserve) (%) [5]7.6 Net Interest Margin (%) [5]10.8 PPI / Average RWA (%) [6]7.6 Net Income / Tangible Assets (%) [5]3.8 Cost / Income Ratio (%) [5]50.4 Market Funds / Tangible Banking Assets (%) [5]4.8 Liquid Banking Assets / Tangible Banking Assets (%) [5]28.4 Gross loans / Due to customers (%) [5]86.6 Source: Moody's [1] All figures and ratios are adjusted using Moody's standard adjustments [2] Basel II; LOCAL GAAP [3] Basel I; LOCAL GAAP [4] about:blank 1/7

2 Compound Annual Growth Rate based on LOCAL GAAP reporting periods [5] LOCAL GAAP reporting periods have been used for average calculation [6] Basel II & LOCAL GAAP reporting periods have been used for average calculation Opinion SUMMARY RATING RATIONALE Moody's has assigned a baseline credit assessment (BCA) of caa1 to Banco Macro (Macro). The standalone rating incorporates the bank's good profitability and capitalization profile, and also its solid asset quality metrics. Banco Macro has a well established franchise, is the financial agent of four provinces, and provides a range of banking services to large corporations, small and medium sized companies and households. The bank's profitability benefits from its pricing power and strong access to lower cost core deposits from its retail and corporate customers. Banco Macro's strong earnings are reflected by a net income to tangible assets ratio of 5.5%. The bank had expanded its loan book at an average annual growth rate of 22% during the last 3 years, and holds a diversified lending mix and strong asset quality profile, as evidenced in its 2% of nonperforming loan ratio and 130.2% reserve coverage that reveals conservative risk management practices. Banco Macro has a sound capitalization profile that allows further business expansion. The bank's reliance on market funds is relatively low, as its funding sources largely derives from a granular deposits base benefited by its financial agent role which provides not only a relatively captive client base but also recurrent low cost funding sources. Macro's long term global local currency (GLC) deposit rating of Caa1/Not Prime derives from the bank's caa1 baseline credit assessment. Moody's has also assigned a global foreign currency deposit rating of Caa2/Not prime, which is constrained by the foreign currency deposits ceiling of Caa2. The local currency national scale deposit ratings is Baa1.ar, and the foreign currency national scale deposit ratings is Ba2.ar. The ratings are underpinned by the bank's standalone credit strength, and also takes into account the introduction of the new methodology, and specifically our basic Loss Given Failure (LGF) analysis. Moody's has also assigned CR Assessments. 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 expected loss 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 (e.g., swaps), letters of credit, guarantees and liquidity facilities. The CR Assessment of the bank is positioned at B3 (cr), one notch above the Adjusted BCA and therefore above senior unsecured and deposit ratings, reflecting Moody's view that its probability of default is lower than that of senior unsecured debt and deposits. Moody's believe that senior obligations represented by the CR Assessment will be more likely preserved in order to limit contagion, minimize losses and avoid disruption of critical functions. Moody's has changed the outlook on the entity's local currency ratings to positive from stable, following the positive outlook on the sovereign government bond rating. We expect the new administration to improve the economic and institutional environment over the coming months, through a series of reforms aimed at tackling persistently high levels of inflation and lack of data accountability, improving investor confidence and the business environment for banks. Rating Drivers Third Largest Private Sector Bank in Argentina, With an Enhanced Retail Presence and Client Base Improvements in Core Earnings Due Mainly to Portfolio and Fee Growth Strong Capitalization and Liquidity Levels Rating Outlook The local currency ratings have positive outlook, while the foreign currency ratings carry stable outlook. What Could Change the Rating Up Macro's standalone rating is appropriately positioned at the level of the sovereign rating. An improvement in the operating conditions, which would ensure disciplined loan growth and profitability, could add positive pressures on the ratings. The foreign currency deposit rating is currently constrained by the country ceilings and these ratings could be upgraded following an upgrade of the ceilings. What Could Change the Rating Down The ratings could be downgraded as a result of an erosion of the bank's asset quality and profitability, exacerbated by the Argentine volatile operating environment. about:blank 2/7

3 DETAILED RATING CONSIDERATIONS BANCO MACRO RATING IS CONSTRAINED BY ITS MACRO PROFILE OF VERY WEAK As a primarily domestic bank, the bank's operating environment is heavily influenced by Argentina and its Macro Profile is thus aligned with that of Argentina at Very Weak. While many Argentinean banks continue to report strong financial results, their ratings are constrained by Argentina's very weak macro profile, which highlights the fragility of the banks' performance. Argentina's (Caa1 negative) economic environment has deteriorated significantly over the past year, plagued by high inflation, steady depreciation of the exchange rate and an unorthodox mix of government policies that have deterred private investment. The country has been in an economic recession since the first quarter of 2014, and the government's default on its sovereign debt in July 2014 has further weighed on investor and consumer confidence. Moody's expects GDP will contract by 1% in 2015 after expanding only 0.5% in 2014, even as inflation remains among the highest in the rated universe, leading to a rise in unemployment and a decline in real household wages. Continued capital outflows will trigger further depreciation of the Argentine peso and lead to additional declines in the central bank's international reserves. Third Largest Private Sector Bank in Argentina, With an Enhanced Retail Presence and Client Base Macro has significant positioning in the financial system as a leading commercial bank and an active player in the banking consolidation process in Argentina. The bank has been growing organically and through many acquisitions. All these acquisitions have enhanced Macro's standing in the banking sector, providing an extensive retail network, particularly in the different provinces, where almost 80% of the bank's branches are located. The bank has a leading presence in provincial markets, which continue to offer attractive opportunities, given the low penetration of banking services and limited competition. In terms of loans, the bank has a market share of 8.5% as of 2014, which has remained stable in the last year positioning the bank as the third largest private bank. In addition, Macro's group is ranked second among private banks in Argentina in terms of payroll accounts, with these accounts holding 90% of the personal loans extended by the bank. At 2014 the bank's loan book expanded 14.3%. Macro has leveraged its presence in the relatively prosperous provinces of central and northern Argentina (where it currently has 434 branches), developing business with middle to low income individuals both under banked customer segments and with small and medium sized companies. Additionally, as the financial agent for the provincial governments of Salta, Misiones, Jujuy, and Tucumán, the bank's strategy has been to market relatively low risk retail banking products, such as direct debit personal loans to the government and private employees who collect their salaries at the bank. Macro offers a range of standard products, which are generally available to both its retail and corporate customers. The bank's strategy is to grow its business as demand for credit in Argentina increases, by focusing on cross selling opportunities among its broad customer base. During the last years, Macro has enlarged its loyal customer base, as reflected in its solid deposits base and payroll loan book. In addition, the bank's shares are held by a group of prominent bankers (40% of shares are held by Jorge Horacio Brito and Ezequiel Carballo). A 29% of shares are publicly quoted, 23% as ADRs on the New York Stock Exchange (NYSE) and 6% on the Buenos Aires Stock Exchange. The remaining 31% of the bank's shares are held by ANSES. Improvements in Core Earnings Due Mainly to Portfolio and Fee Growth Earnings grew as a result of the group's broadening business model and positioning. As of December 2014 the bank registered a net income of Ar$3,480 million, which was 42.4% higher than the previous year. The group exhibits a strong capacity to generate earnings based on its broad client base, reflecting in an stable 12.2% net interest margin over the last quarters. These positive results were related to a strong increase in the bank s financial margin and commissions & fees, while operating expenses experienced a proportionally lower increase. The net interest margin was the result of significant earnings from personal loans and credit cards, and also from corporate loans. Income from consumer banking (personal loans and credit cards) reached almost half of total earnings, increasing its share of total income as it consolidates its position as one of the leading banks for consumer loans and credit cards in Argentina. Earnings derived from receivables and cash advances to corporate and SMEs are also significant. In addition, given its financial agent role, Macro enjoys a low cost of funding which boosts the bank's bottom line. The bank intends to continue growing its customer base, which is essential to increasing interest and fee based revenues, through its extensive branch network and large client base. However, the uncertain operating environment in Argentina and elevated inflation remain a key challenge for the bank, as for the banking system as a whole, because rising operating costs and caps on interest rates constrain the banks' performance, although regulatory restrictions on dividend distribution support capital accumulation. Macro's efficiency has been stable at 47.65% over the last quarters. In the past, the ratio was worse driven by a significant increase in operating expenses due to aforementioned acquisitions, and also higher inflation translated into higher personnel expenses. Our assigned Profitability score capture the effect of mandatory lending below market rates, lending rates and fees caps, that together might press down the bank's earnings generation in the coming quarters. In addition, profits in real terms are considerably lower than the one registered given the high level of inflation. Strong Capitalization and Liquidity Levels about:blank 3/7

4 Macro easily exceeds minimum capital requirements. As of December 2014, the bank's shareholders equity represented 15.32% of total assets. The bank's funding drivers are chiefly deposits, which reached 86.1% of total funding, with around 40% concentrated in time deposits. Macro deposits' granularity is adequate, wherein the largest 10 depositors represented less than 15% of total. Macro has a satisfactory liquidity profile based on its 34.32% liquid assets as a percentage of total assets as of December As part of the bank's liquidity management strategy, Banco Macro allocates its liquidity excess in central bank's notes, which are short term and considered liquid, generating the aforementioned concentration risk. The group has an exposure to government securities (mainly highly liquid central bank notes) above the one of its peers. However, excluding its public sector exposure, the group has adequate granularity in terms of credit risk concentration, with the top 10 debtors representing 4.9% of total as of December Notching Considerations GOVERNMENT SUPPORT Banco Macro's deposit rating of Caa1/Not Prime does not benefit from government support uplift, as the case of other Argentine issuers. The bank's caa1 baseline credit assessment is already at the government's Caa1 rating. 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. Rating Factors Banco Macro S.A. Macro Factors Weighted Macro Profile Very Weak Financial Profile Factor Historic Ratio Macro Credit Trend Assigned Score Key driver #1 Key driver #2 Adjusted Score Solvency Asset Risk Problem Loans / Gross 2.0% b3 b3 Loan growth Expected trend Loans Capital TCE / RWA 11.1% caa2 caa1 Stress capital resilience Expected trend Profitability Net Income / Tangible Assets 4.1% ba3 b1 Earnings quality Combined Solvency Score b3 b3 Liquidity Funding Structure Market Funds / Tangible Banking Assets Liquid Resources Liquid Banking Assets / Tangible Banking Assets 1.9% ba3 b1 Deposit quality 34.5% caa1 caa1 Quality of liquid assets Combined Liquidity Score b2 b2 Loan loss charge coverage Market access Financial Profile b3 about:blank 4/7

5 Qualitative Adjustments Adjustment Business Diversification 0 Opacity and Complexity 0 Corporate Behavior 0 Total Qualitative Adjustments 0 Sovereign or Affiliate constraint Scorecard Calculated BCA range Caa1 b3 caa2 Assigned BCA caa1 Affiliate Support notching 0 Adjusted BCA caa1 Instrument Class Loss Given Failure notching Additional notching Preliminary Rating Assessment Government Support notching Local Currency rating Foreign Currency rating Deposits 0 0 caa1 0 Caa1 Caa2 Senior unsecured bank debt 0 0 caa1 0 Caa1 Dated subordinated bank debt 1 0 caa2 0 Ca(hyb) 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 Moody s Corporation, Moody s Investors Service, Inc., Moody s Analytics, Inc. and/or their licensors and affiliates (collectively, MOODY S ). All rights reserved. CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES ( MIS ) ARE MOODY S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY S ( MOODY S PUBLICATIONS ) MAY INCLUDE MOODY S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT LIKE SECURITIES. MOODY S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY S OPINIONS INCLUDED IN MOODY S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY S ANALYTICS, INC. CREDIT RATINGS AND MOODY S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY S PUBLICATIONS about:blank 5/7

6 COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. MOODY S CREDIT RATINGS AND MOODY S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY S CREDIT RATINGS OR MOODY S PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided AS IS without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third party sources. However, MOODY S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing the Moody s Publications. To the extent permitted by law, MOODY S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY S. To the extent permitted by law, MOODY S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY S IN ANY FORM OR MANNER WHATSOEVER. Moody s Investors Service, Inc., a wholly owned credit rating agency subsidiary of Moody s Corporation ( MCO ), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody s Investors Service, Inc. for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain about:blank 6/7

7 policies and procedures to address the independence of MIS s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at under the heading Investor Relations Corporate Governance Director and Shareholder Affiliation Policy. Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY S affiliate, Moody s Investors Service Pty Limited ABN AFSL and/or Moody s Analytics Australia Pty Ltd ABN AFSL (as applicable). This document is intended to be provided only to wholesale clients within the meaning of section 761G of the Corporations Act By continuing to access this document from within Australia, you represent to MOODY S that you are, or are accessing the document as a representative of, a wholesale client and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to retail clients within the meaning of section 761G of the Corporations Act MOODY S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be reckless and inappropriate for retail investors to use MOODY S credit ratings or publications when making an investment decision. If in doubt you should contact your financial or other professional adviser. Additional terms for Japan only: Moody's Japan K.K. ( MJKK ) is a wholly owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly owned by Moody s Overseas Holdings Inc., a wholly owned subsidiary of MCO. Moody s SF Japan K.K. ( MSFJ ) is a wholly owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization ( NRSRO ). Therefore, credit ratings assigned by MSFJ are Non NRSRO Credit Ratings. Non NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively. MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for appraisal and rating services rendered by it fees ranging from JPY200,000 to approximately JPY350,000,000. MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. about:blank 7/7