Fitch Ratings has today affirmed the Long-term foreign and local
currency Issuer Default Ratings (IDRs) of Banco ABC Brasil S.A.
(ABCBr) at 'BBB-', Outlook Stable. Fitch has also affirmed all of
the bank's other ratings. A complete list of rating actions is
included at the end of this press release.
KEY RATING DRIVERS - IDRS, NATIONAL RATINGS, SUPPORT RATINGS
(SRs), SUPPORT RATING FLOORS (SRFs), DEBT RATINGS, VIABILITY
RATINGS (VRs)
ABCBr's IDRs are driven by its VR which continues to be based on
the bank's low risk profile, consistent profitability, satisfactory
capitalization and sound risk and liquidity management. Despite the
weak operating environment, the bank's profitability remained
satisfactory - in part due to ABCBr's relatively low funding costs,
strategic focus and the reduced appetite of some of its other
competitors. The bank has continued its efforts to further
diversify its funding profile, leading to stronger asset and
liability management as it continues to expand its corporate and
middle market operations. As a result, the bank's credit portfolios
continue to be conservatively matched to its funding, allowing for
comfortable levels of liquidity. ABCBr's ratings also reflect the
well-positioned franchise and its overall sound financial profile
as a wholesale-funded bank.
The bank operates under a well-defined strategy of providing
credit and other banking services mainly to the corporate segment
(annual revenues over BRL500 million) and also mid-sized companies
(annual revenues above BRL 50 million). ABCBr's rating remains
constrained by its company profile, as its franchise does not
compare as well to the large and dominant banks in Brazil in terms
of size and diversification. This results in, among other things, a
lower level of low-cost, diversified deposit funding.
The bank has performed consistently during the last four years
despite the weak economic scenario. While continuing to focus on
the markets it knows well, the bank grew its loan portfolio by 15%
during 2014, following 16.9% growth in 2013. ABCBr benefitted from
the reduced levels of competition while maintaining its
conservative underwriting, which is reflected in its low level of
impairments. ABCBr's relatively larger than proportional loan
growth compared to private sector lenders may impose some seasoning
pressures, but Fitch expects asset quality ratios will remain
within its historical trends given the bank's disciplined lending
approach.
As of Dec. 2014 ABCBr reported a very low level of
non-performing loans (NPLs) over 90 days of 0.7% (banking system
average was approximately 2.8%), which is a reflection of the focus
on lower risk companies and its conservative underwriting. The
bank's loan loss reserves as a percentage of the loan portfolio was
a comfortable 2% representing a coverage ratio of 286%.
The recent well-publicized negative developments that affected a
significant number of companies in the corporate world in Brazil
(such as companies in sectors related that provided services to the
national oil company, Petroleos Brasileiros and the delicate
situation of certain companies in the sugar and ethanol business)
have not had a material impact on ABCBr's asset quality as the bank
did not have a relevant credit exposure to those segments. While
Fitch expects to see some weakening of the bank's asset quality in
2015 it will be mostly due to the continued weak environment. This
expected deterioration should be easily absorbed by the comfortable
level of ABCBr's loan loss reserves.
The bank continues to focus on ensuring a stable liquidity
position through conservative asset liability management policies
to mitigate gaps through hedging and funding diversification.
Strategies include the sourcing of longer term funding which
include the use of longer term instruments such as Letras
Financeiras which saw significant growth during the past three
years.
Despite the loan growth of the last two years, ABCBr continues
to maintain satisfactory capital ratios. At Dec. 31, 2014, the
Fitch core capital ratio was 10.80%. The bank almost meets the
Central Bank regulatory minimum total capital requirement solely by
means of its Tier I regulatory capital ratio of 10.86%. Fitch
expects ABCBr will not have any difficulty adjusting to the
upcoming implementation of Basel III according to the Brazilian
Central Bank's timetable. ABCBr currently has a total Regulatory
Capital ratio of 14.39%.
ABCBr has a SR of '3' in view of the expected support from its
parent, Arab Banking Corporation ('BBB-', Outlook Stable) which is
based in Bahrain. Given the subsidiary's significant contribution
to the parent's revenues and the brand, Fitch believes that in the
unlikely event that it is needed, it is likely that the Brazilian
subsidiary would receive support from its majority shareholder
(33.3% of the shareholding is free-float).
RATING SENSITIVITIES - IDRS, NATIONAL RATINGS, SRs, SRFs, DEBT
RATINGS, VRs
Given its funding profile and narrow business niche, an upgrade
of ABCBr's ratings is limited under its current business model.
Although unlikely in Fitch's view, a significant deterioration of
ABCBr's asset quality that results in credit costs that severely
limit its profitability and ability to grow its capital, combined
with a reduction on its liquidity or capitalization position could
lead to a downgrade of the bank's ratings. A decline in the Fitch
core capital to risk-weighted assets ratio below 9% along with a
reduction in operating income to an average asset ratio below 1.5%
could result in a ratings review.
Fitch has affirmed the following ratings:
ABC Brasil:
--Long-term foreign and local currency IDRs at 'BBB-', Outlook
Stable;
--Short-term foreign and local currency IDRs at 'F3';
--Viability rating at 'bbb-';
--Long-term national rating at 'AA(bra)', Outlook Stable;
--Short-term national rating at 'F1+(bra)';
--Support rating at '3';
-- Senior unsecured BRL notes due 2016 foreign currency rating
at 'BBB-'.
Additional information is available on www.fitchratings.com.
Applicable Criteria and Related Research:
--'Global Bank Rating Criteria' (March 20, 2015);
--'Macro-Prudential Risk Monitor' (March 3, 2015).
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=983747
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Fitch RatingsPrimary AnalystRobert Stoll,
+1-212-908-9155DirectorFitch Ratings, Inc.33 Whitehall St.New York,
NY 10004orSecondary AnalystEduardo Ribas,
+55-11-4504-2213DirectororCommittee ChairpersonFranklin Santarelli,
+1-212-908-0739Managing DirectororMedia Relations, New
YorkElizabeth Fogerty,
+1-212-908-0526elizabeth.fogerty@fitchratings.com