KEY RATING DRIVERS
The downgrade of Pine’s ratings reflects Fitch’s opinion that the drop on the bank’s profitability observed during 2014 to a level below of that of previous years is a trend that should continue in the medium term. Such structural change on the bank’s profitability profile mainly comes as a result of reduced revenues due the more temperate growth and reposition of its loan book towards less risky segments, competition challenges and possible needs for increased loan loss provisions in the short and medium term.
Pine’s relatively large asset concentration – especially from corporate names on its loan book – results in asset quality pressures due to a decelerating economy and challenging operating environment. Fitch notes that the repositioning of its lending activities towards lower risk segments could reduce its credit costs in the medium term. However, it also demands not only an appropriate pricing, but a deeper assessment of the bank’s costs (credit and operating costs) in order to rebalance the risk-reward relationship of its deals. In the agency’s view, this task may be limited by the pressures of the operating environment.
Since end-2014 Pine has chosen not to expand credit operations. This decision aimed at maintaining the bank’s asset quality protected, avoiding higher provisioning expenses in upcoming years and thus partially offsetting the retraction in its profitability. This decision can compromise the bank’s future revenues, since it can reduce its spreads to face the increasing appetite of the competition in the medium term. The current levels of liquidity in the industry and the search of lower risk credit operations by Pine’s competitors increases the credit offer by banks with larger bargaining power (and a wide product range) to better quality clients – which are Pine’s focus.
The good quality of Pine’s credit portfolio (which is the result of adequate underwriting, credit risk policies and guarantee structuring) may be tested under the current scenario of economic deceleration. Also, its relatively large exposure to some corporate clients will likely demand higher provisioning levels in the period 2015/16. This increased credit cost should reduce the bank’s capital generation capacity as it pressures its profitability. Fitch expects Pine to remain with low profitability levels during 2015 and 2016, but net losses are not part of our base case scenario. In general, Fitch estimates that Brazilian banks profitability should be impacted by an increase in credit provisioning in the range of approximately 30% in 2015 – and Pine would not be an exception.
Prudent asset and liability management and the excess of liquidity in
The average cost of Pine’s liabilities has been gradually reducing. Some examples of the bank’s movements on this purpose are the early payment of around 50% of the debts issued in the Chilean market (Huaso Bond), the bank’s repayment of some of its more expensive funding issuances (including its subordinated debt) and the cost reduction associated with its DPGE portfolio – by attaching guarantees to it, resulting in lower insurance costs with FGC.
In an attempt to hold its profitability under control, Pine has been adopting measures to contain personnel and administrative costs. Among these, the bank has reduced its staff by around 10% from
Despite the trend of lower results showed in the last couple of years, the bank’s capitalization levels were maintained in 2014. The Fitch’s
Pine shows low concentration on credits deriving from the production chain related to ‘Lava Jato’ (car wash) operation – directly or indirectly dependent upon
Limited Upgrade Potential: Pine’s ratings could be upgraded in a scenario of increasing revenues and adequate costs control, which resulted in constant improvements to its operating profitability.
Negative Rating Action: Pine’s ratings could be further downgraded in case of deterioration in its performance, asset quality and/or capitalization (meaning ROA below 1.0%, impaired loans (D-H) above 5.0% and/or
Fitch takes the following rating actions:
Banco Pine S.A.
–Long-Term Foreign and Local Currency IDRs downgraded to ‘BB’ from ‘BB+’; Outlook Stable;
–Short-Term Foreign and Local Currency IDRs affirmed at ‘B’;
–Viability Rating downgraded to ‘bb’ from ‘bb+’;
–Support Rating affirmed at ‘5’;
–Support Rating Floor affirmed at ‘no floor’;
–Long-Term National Rating downgraded to ‘A+(bra)’ from
‘AA-(bra)’ ; Outlook Stable;
–Short-Term National Rating affirmed at ‘F1+(bra)’ ;
–Senior unsecured BRL letras financeiras due
–Subordinated Debt USD Notes due 2017 downgraded to ‘B+’ (B plus) from ‘BB-‘;
–Huaso Bonds Program Expiring in 2022 downgraded to ‘A-(cl)’ from ‘A(cl)’;
–Huaso Bonds due 2017 downgraded to ‘A-(cl)’ from ‘A(cl)’.
Additional information is available at ‘www.fitchratings.com‘.
–‘Global Bank Rating Criteria’ (Mach 20, 2015);
–‘National Scale Rating Criteria’ (
Global Bank Rating Criteria
National Scale Ratings Criteria
Fitch Ratings Brasil Ltda.
Secondary analyst (issuance in
Source: Fitch Ratings