MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has affirmed the Long-term Issuer Default Ratings (IDRs) of Argentina's Tarjeta Naranja S.A. (TN) and Tarjetas Cuyanas S.A. (TC) at 'B-' and their Short-term IDRs at 'B'. The Rating Outlook for the long-term ratings is Negative, in line with that of the sovereign and most of the country's rated financial institutions. In addition, Fitch has affirmed TN's global senior debt for USD200 million at 'B-'.
Fitch also affirms at '5' and subsequently withdraws the support rating for both entities. A full list of rating actions follows at the end of this release.
KEY RATING DRIVERS
TN's and TC's IDRs are affected by the adverse and uncertain operating environment that financial institutions are facing in Argentina, while their financial profiles are robust. The parent company for both entities, Tarjetas Regionales, has a strong and growing franchise, being the largest credit card issuer in Argentina and one of the top players in Latin America.
Both TN and TC show ample loss absorption capacity (sound equity bases, strong capacity to internally generate equity, and sizeable loan loss reserves); high and stable recurring operating profitability; asset quality figures that are resilient throughout the cycle and adequate relative to their business models; and good funding and liquidity profiles.
The withdrawal of the '5' support ratings is a consequence of Fitch's practices to assign this type of ratings only to banks or bank holding companies.
RATING SENSITIVITIES
Downside risk to TN's and TC's ratings could stem from a sovereign rating downgrade and/or a material deterioration of the operating environment for financial institutions. Under current circumstances, Fitch considers unlikely that Argentine financial institutions could be rated above the sovereign, especially private sector companies with foreign debt that are exposed to the Central Bank's willingness and ability to provide USD in order to serve such liabilities, as is the case of TN.
In Fitch's view, TN's and TC's ratings are currently capped by the sovereign rating, so the companies' ratings could improve to some extent if the former is eventually upgraded, provided that they maintain their currently sound financial profiles.
CREDIT PROFILES
TN and TC maintain a sound and recurring operating performance, driven by their wide interest margins and, more importantly, the ample and stable fee income sourced from both its acquiring and merchant businesses. Despite the inherently high costs of this model, both companies have maintained non-interest expenses and loan provisions well controlled, driving robust recurring operating ROAAs (6M13: 7.7% for TN and 10.8% for TC). TN has wider margins arising from its larger scale, while TC's performance reflects its relatively better contained credit costs recently. Nonetheless, the possibility of increased intervention and controls in this business line cannot be ruled out.
TN and TC have ample capital bases and sound capacity to internally generate equity. As of June 2013, the equity to assets ratio remained at sound levels of 18.8% and 18.3%, respectively. Fitch's more stringent definition of core capital, which excludes intangibles and deferred tax assets, were also robust at 15.9% and 15.7% of total assets, respectively. Moreover, dividend pay-out and the approach for loan loss provisioning are also conservative.
In Fitch's view, the impairment and charge-offs ratios as of June 2013 remain reasonable. The upward trend in TN's impaired loans mainly arises from the exceptionally low levels recorded in these metrics during the more buoyant 2011 period. Despite their mono-line nature, Fitch's regards positively TN's and TC's approach to monitor and control systematic risks.
TN and TC have strong and stable funding profiles, composed of payables to merchant businesses, local issues of short- and medium-term unsecured notes, and bank facilities. The overall duration of liabilities is twice the duration of average loans (8 versus 4 months, respectively). However, TN's ability to repay the principal of its USD200m global notes is heavily reliant on macroeconomic and political developments.
TN and TC are 99.0%-owned by Tarjetas Regionales (TR), the largest credit card issuer in Argentina and one of the largest in Latin America. Broadly speaking, TN accounts for roughly 80% of TR's business volumes, revenues, and earnings, with TC making almost the remainder 20%. At present, Banco Galicia, one of the two largest privately-owned Argentine banks, owns 77% of TR, while the balance is held by the original shareholders of both TN and TC. TN also holds a 24% stake of Tarjeta Naranja Peru SA, a company created in July 2011, through a joint venture with Banco de Credito del Peru.
Fitch affirms the following ratings:
Tarjeta Naranja S.A.
--Long-term local and foreign currency Issuer Default Rating (IDR) at 'B-'; Negative Outlook;
--Short-term local and foreign currency IDRs at 'B';
--USD200 million senior unsecured bonds at 'B-/RR4'.
Tarjetas Cuyanas S.A.
--Long-term local currency Issuer Default Rating (IDR) at 'B-'; Negative Outlook;
--Short-term local currency IDR at 'B';
Fitch affirms and withdrew the following ratings:
Tarjeta Naranja S.A.
--Support Rating of '5'.
Tarjetas Cuyanas S.A.
--Support Rating of '5'.
Additional information is available on www.fitchratings.com
Applicable Criteria and Related Research:
-- Global Financial Institutions Rating Criteria (Aug. 15, 2012).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=807418
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