SAO PAULO & RIO DE JANEIRO & NEW YORK--(BUSINESS WIRE)--Fitch Ratings today affirmed the ratings of Banco Societe Generale Brasil S.A.(SGBR) as follows:
--Foreign Currency Long-term IDR (Issuer Default Rating) at 'BBB',
Positive Outlook;
--Local Currency Long-term IDR at 'BBB+',
Positive Outlook;
--Foreign and Local Currency Short-term IDRs at
'F2';
--Individual Rating at 'C/D';
--Support Rating at '2';
--National
Long-term Rating at 'AAA(bra)', Stable Outlook;
--National
Short-term Rating at 'F1+(bra)'.
The Foreign Currency and Local Currency IDRs of SGBR and its National Ratings reflect the support from its parent, Societe Generale S.A. (SG; IDR 'A+'; Stable Outlook by Fitch). The Individual Rating considers SGBR's satisfactory asset-quality track record although challenged by the recent acquisition of two smaller banks focused on consumer lending, SG operational support and the increased diversification on its business model. However, it also takes into account the bank's modest size, the high proportion of intangible assets that undermine its capital structure and the challenges derived from the successful integration and overhaul of its recent acquisitions.
The Positive Outlook on its IDRs, related to the current Positive Outlook on Brazil's sovereign rating, reflects the financial strength of SGBR's shareholder. The Support ratings of '2' on SGBR reflect Fitch's belief that its parent has both the capacity and willingness to support the bank should it be required. Changes in SG capacity or propensity to support SGBR would directly affect SGBR's ratings, possibly in more than one notch.
The Individual Rating would benefit from the improvement of the bank's asset quality ratios and thus lower pressures on its operating performance, while the enhancement of its capital base will be also beneficial. Negative pressures on its Individual Rating would account for a longer than expected recovery in its asset quality ratios or further deterioration on its profitability that ultimately affects its capital base.
In 2007, SGBR acquired a participation in Banco Pecunia S.A. (Pecunia; Long-Term National Rating 'AAA(bra)'; Stable Outlook) and Banco Cacique S.A. (Cacique; Long-Term National Rating 'AAA(bra)'; Stable Outlook), two retail banks specialized in vehicle financing and payroll discounted loans, respectively. This consistently increased its loan portfolio (from BRL564 million in 2006 to BRL2,1 billion in 2007) and added BRL638 million of goodwill to its consolidated balance sheet, also generating large amortization expenses that partially explain SGBR's losses in past years. The expansion into retail business through these two entities has resulted in significant loan loss provisions that have pressured the profitability of the bank, although those pressures have and will steadily decrease thanks to SGBR adequate management and advanced risk control tools. Since February 2010, SGBR holds full control over Pecunia after the acquisition of 30% of its shares. Pecunia is part of a strategy to increase consumer finance globally.
With an historically good asset quality track record, proper of its previous business focus (corporate lending and project finance), SGBR naturally began to report an increase in the impaired loan categories after the acquisitions of Cacique and Pecunia (banks focused on the more profitable albeit riskier consumer market), but with adequate coverage, a situation common to other participants in that market in Brazil and in part consequence of the economic downturn of late 2008 and 2009. An expected more benign operating environment, and the benefits of a significant clean up of the acquired loan portfolio and the use of SG advanced credit risk tools, bode well for the medium- and long-term performance of the bank, being that it is expected a recovery on its asset quality ratios and overall earning generations needed both to cover the hefty amortization charges of its goodwill and ultimately to enhance its capital base.
SGBR's funding comes mainly from head office lines at competitive prices. Pecunia and Cacique funding needs are managed by SGBR, also benefiting from parent funding capabilities. This policy gave the Brazilian subsidiaries ample liquidity during the 2008 crisis. Consolidated net worth has been declining since 2007, given recent net losses , while Fitch Eligible Capital is strongly affected by aforementioned goodwill; although the current capital levels compares adequately with other similar rated banks and are backed up by the possible support from its shareholder should it be required.
SGBR has operated in Brazil in the wholesale market since 1967. It entered retail lending through the acquisitions of Cacique and Pecunia in 2007.
Additional information available at 'www.fitchratings.com' or 'www.fitchratings.com.br'.
Applicable Criteria and Related Research:
--'National Ratings
Criteria' (Jan. 19, 2011);
--'Short-Term Ratings Criteria for
Corporate Finance' (Nov. 2, 2010);
--'Global Financial Institutions
Rating Criteria' (Aug. 16, 2010).
Applicable Criteria and Related Research:
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Short-Term
Ratings Criteria for Corporate Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=568726
Global
Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685
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