NEW YORK & SAO PAULO--(BUSINESS WIRE)--Fitch Ratings has taken the following rating actions on Banco ABC Brasil S.A.:
--Long-term foreign and local currency Issuer Default Ratings (IDRs)
upgraded to 'BBB-' from 'BB+'; Outlook Stable;
--Short-term foreign
and local currency IDRs upgraded to 'F3' from 'B';
--Viability
rating upgraded to 'bbb-' from 'bb+';
--Support rating affirmed at
'3';
--Long-term national rating upgraded to 'AA(bra)' from
'AA-(bra)'; Outlook Stable;
--Short-term national rating affirmed
at 'F1+(bra)'.
KEY RATING DRIVERS: LIQUIDITY, RISK MANAGEMENT, ASSET QUALITY
The upgrade on Banco ABC Brasil S.A.'s (ABCBr) foreign currency and local currency Issuer Default Ratings (IDRs), viability rating and long term national ratings are based on the bank's low risk profile, which is underpinned by its low funding cost, sound risk management and consistent profitability over the years even facing a fierce and volatile competitive environment. Over the last years, improvements included a further diversification of its funding profile leading to a stronger asset and liabilities management as it continues to expand its corporate and middle market operations. Its credit portfolios are conservatively matched and continue to show strong liquidity. Its continued high quality asset and liquidity combined with its satisfactory profitability and capital adequacy evidences the bank's overall solid financial strength.
The upgrade takes into account the bank's conservative approach towards risk management and the consistent and solid asset quality indicators that compare very well to peers during the weaker economic environment seen during the last two years. The bank focuses on the lower-risk corporates and a middle market segment. The growth of the middle market has been managed prudently following the bank's conservative risk profile.
The assignment of a VR higher than that of its parent reflects the fact that ABCBr has a strong and well regarded franchise in the Brazilian market, its management's independence combined with a very limited funding dependence from its parent. Such independence was tested satisfactorily during 2011 during the Libyan crisis.
While the impact of the higher credit costs, higher levels of liquid assets, and lower interest rates led to a reduction in ABCBr's 2012 operational profit and net income, the bank was still able to report satisfactory profitability ratios in a challenging business environment (ROAA of 1.9% and an average of 2.1% in the last five years). The bank's medium-term strategy is to grow the percentage of the middle market segment from the current 14% to 25% of the total credit portfolio through its expanded sales platforms which have already grown the number of middle market clients while maintaining conservative per client exposure and average tenors below 10 months. On the corporate segment, which ABCBr views as a more mature market, the bank has been successful in expanding its fee related business via cross-selling to companies with more sophisticated demand for advisory and treasury services, including derivatives and M&A.
Fitch core capital/risk-weighted assets at Dec. 2012 was an adequate 10.6%, although it was lower than the 11.3% of the previous year in part due to the growth in risk assets. Regulatory capital rose further to a comfortable 15.9%. Major shareholder Arab Banking Corporation (ABC; IDR 'BB+/Stable Outlook) is strongly capitalized and has shown willingness and ability to provide support if needed. Fitch believes that in a stress scenario, ABCBr would receive some degree of support from ABC.
RATING SENSITIVITIES:
Given its funding profile and narrow business niche, further upgrades of the bank's ratings may be 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 towards a reduction on the bank's ratings. A decline in Fitch core capital to risk-weighted assets ratio below 9% along with a reduction in operating income to average asset ratio below 2% could result in a ratings review.
Established in 1989, Banco ABC Brasil S.A. is a midsized wholesale bank, which focuses in the corporate (companies whose annual sales are above BRL 400 million) and middle market segments (companies with net sales between BRL30 and BRL400 million).
Additional information is available at www.fitchratings.com. 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:
--'Global Financial
Institutions Rating Criteria' (Aug. 15, 2012);
--'National Ratings
Criteria' (Jan. 19, 2011);
--'Rating FI Subsidiaries and Holding
Companies' (Aug. 10, 2012).
Applicable Criteria and Related Research
Global Financial
Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181
National
Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Rating
FI Subsidiaries and Holding Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209
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