RIO DE JANEIRO & SAO PAULO--()--Fitch Ratings has affirmed all ratings for Banco Bonsucesso S.A. (Bonsucesso) as follows:
--Long-term Foreign and Local Currency IDRs (Issuer Default Ratings) at 'B+'; Outlook Negative;
--Short-term Foreign and Local Currency IDRs at 'B';
--Viability Rating at 'b+';
--Support Rating at '5';
--Support Rating Floor at 'No Floor';
--Long-term National Rating at 'BBB+(bra)'; Outlook Negative;
--Short-term National Rating at 'F2(bra)'.
The Rating Outlook for Bonsucesso's long-term IDRs (foreign and local currency) remains Negative. The Negative Outlook reflects Bonsucesso's weak albeit improving profitability and tight capital base. For 2013, Fitch expects Bonsucesso to face relevant challenges, among which are the need to continue to readjust to a new business environment, operating with a leaner structure and with lower results. The development of the funding structure, with costs more compatible with its operating profile, remains as the greatest challenge for the bank's growth.
Fitch continues to monitor the advances of the bank towards the recovery of its profitability and preservation of its capital adequacy. If the bank is not able to continue the recovery of its profits and deliver an operational ROAA of at least 1.5% during 2013, while its Fitch core capital ratio decreases to below 9% and/or there is a sustained deterioration in delinquency indicators, the ratings could be downgraded in the next 12 months.
However, if Bonsucesso is able to continue to improve its profitability ratios, as seen in the last two quarters, while preserving its Fitch Capital Ratio and asset quality, Fitch may revise the bank's Outlook to Stable.
Bonsucesso's IDRs and National Ratings are driven by its Viability Rating. This reflects the institution's experience in the competitive payroll deductible loan segment. The ratings also portray the relatively modest size of the bank, the low Fitch core capital ratio and the fact of Bonsucesso being a niche bank with large concentrations and more susceptible to economic fluctuations.
The bank has been able to reverse the loss in the first quarter of 2012 and presented ROE of acceptable 7.4% in the first nine months of 2012. This was due to increased credits in the balance sheet and lower funding costs and administrative expenses, even without any impacts from revenue anticipation. In September 2012, the auditor had a few qualifications in relation to expense deferrals, although such procedure follows Central Bank guidance. Without considering the deferral, the bank would have presented lower results in the first nine months of 2012.
Payroll and deductible lending has continually faced intense competition from large banks. To by-pass this situation, Bonsucesso has limited its focus to its most profitable agreements and boosted its volume of payroll deductible loans via credit cards, where competition is lower because only a few banks offer the product. Furthermore, the bank is launching a series of new products and maintains its operation in the middle market.
In 2013, Bonsucesso is expected to maintain the funding via loan sales to banks and/or receivables-backed investment funds (FIDCs), although in lower volumes than in the past. Fitch also believes that the bank may use its special guaranteed time deposit II (DPGE II) limit, which offers more attractive funding costs, although assets would need to pledged as collateral to the Creditor Guarantor Fund (FGC). That said, an intensive use of this secured funding source (DPGE II) may result in an undesired encumbrance of Bonsucesso's balance sheet, which may negatively affect the expected recovery of unsecured creditors in case of stress, which is a similar situation to the other banks that may use this secured funding facility in an extensive manner. At the moment, the bank plans to use this facility moderately, and this plan is neutral to its ratings. Bonsucesso continues to use nearly all of its limit with the long-term DPGE I, which favors its term matching and adequate liquidity, but the future growth of the DPGE I facility is limited, as it ends in 2016.
Fitch core capital ratio remained low, around 9.5% in September 2012. The issuance of subordinated debt, considered as Tier 2 regulatory capital, is not included in this calculation, although Fitch recognizes the benefits from this additional funding source, with good maturity tenors. Given the growth expectations and the likelihood that the profits will be modest, Bonsusesso's capital adequacy ratios will need to be enhanced, so that the bank can manage growth and generate further cushions to cover unexpected losses.
As with other small- and medium-sized banks, Bonsucesso has registered deterioration in its credit quality ratios since 2011, mainly in the middle market portfolio. Until the third quarter of 2012, the indicators were slightly better, but still demand attention, despite the reduction in the corporate portfolio.
Controlled by the family Pentagna Guimaraes, Bonsucesso originated in 1992 with the creation of Bonsucesso Financeira, transformed into a multiple bank in 1997.
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:
--'National Ratings Criteria' (Jan. 19, 2011);
--'Global Financial Institutions Rating Criteria,' (Aug. 15, 2012).
Applicable Criteria and Related Research:
National Ratings Criteria
Global Financial Institutions Rating Criteria