Fitch Ratings has today affirmed the following Banco Original
S.A. (Original) ratings:
--Long-Term Foreign and Local Currency Issuer Default Ratings
(IDRs) at B+;
--Short-Term Foreign and Local Currency IDRs at 'B';
--Viability Rating at b+;
--National Long-Term Rating at BBB+(bra).
--National Short-Term Rating at 'F2(bra)';
--Support Rating at '5';
--Support Rating Floor at 'NF'.
The Rating Outlook remains Stable. Original's IDRs are driven by
its VR.
KEY RATING DRIVERS - IDRs, VR, NATIONAL RATINGS
The affirmation of Original's IDRs and National Ratings reflects
the bank's still modest profitability, and the need to further
consolidate its recently launched retail banking project in order
to achieve adequate and recurring profitability. Original's ratings
also take into account its whole-sale based funding profile.
However, conservative asset and liability management and solid
liquidity considerably mitigate potential risks arising from the
concentrated nature of its funding base.
Conversely, Fitch recognizes that the national ratings could
benefit in the short-term from Original's successful steps towards
the consolidation of a more competitive franchise in the corporate
and agribusiness segment. Fitch also expects that this will lead to
incrementally improving results going forward, while maintaining
adequate underwriting standards, capitalization and liquidity. Over
the past three years, after the launch of a full revision of its
organizational structure, Original has managed to strengthen its
customer base, which has placed its corporate franchise in a better
and more comparable position to other midsize banks with
longer-track records in the market.
Original's total assets reached BRL7.4 billion as of June 2016,
up from BRL3.0 billion at the end of 2013. During this period, the
bank managed to strengthen its competitive position as a niche
player, while most of its competitors have been forced to adopt a
more defensive approach due the economic crisis and reduce their
size and scope in order to protect their franchises.
Profitability, on the other hand, remains one of the bank's main
weaknesses, and is lower than 'BB' category rated-banks. This
reflects not only Original's high capital adequacy ratios and its
need to further mature its overall franchise, but also its
significant investments in the digital banking segment, which has
yet to bear fruit. This in turn, may prove challenging under the
current economic scenario and fierce competitive landscape. As of
June 2016, the bank's operating profit to risk weighted assets
decreased to 0.05% from 1.14% in December 2015. Fitch expects
profitability to remain relatively modest in the short term,
although it should start to improve gradually from 2017 onwards,
when the bulk of the major expenses related to the retail segment
will already have been incurred and provisioning expenses and
funding costs should decline.
Meanwhile, Fitch expects the bank to maintain its above average
capitalization ratios and preserve a prudent liquidity position.
Capitalization is comfortable, and in spite of the bank's
aggressive growth plans, management has stated it aims to keep
regulatory capital in excess of 16%. The bank's Fitch Core Capital
(FCC) ratio of 23.04% at June 2016 dropped significantly from
41.72% at December 2014, as a result of rapid loan growth. Fitch
believes that capitalization will remain adequate to support the
bank's medium-term goals, despite modest profitability and until
the bank's business plans are fully implemented and mature.
SR and SRF
Original's Support Rating and Support Rating Floor were affirmed
at '5' and 'NF', respectively, in view of the bank's low systemic
importance. In Fitch's view, external support cannot be relied
upon.
RATING SENSITIVITIES
IDRs, VR AND NATIONAL RATINGS
Original's IDRs would benefit from a sustained improvement in
its recurring operating profitability, diversification of its
funding base, and the maintenance of its FCC ratio above 15%. The
ratings could also be positively affected in the near term if the
positive trend of the implementation of the bank's business plan
(including achieving a longer and positive track-record in its
nascent digital banking segment) continues and results in a further
consolidation of the bank's franchise, while the currently robust
capital and liquidity profile and adequate asset-quality is
maintained.
In turn, if performance deteriorates and remains very weak for a
sustained period, or in case of a deterioration of the quality of
its corporate or agribusiness loan portfolio, Original's IDRs could
be downgraded. A deterioration of the FCC ratio to below 15% or a
longer than expected implementation of the business plan and modest
sustained performance could all trigger a rating downgrade.
SR and SRF
A potential upgrade of Original's Support Rating and Support
Rating Floor is unlikely in the foreseeable future, since this
would arise from a material gain in systemic importance.
Additional information is available on www.fitchratings.com.
Applicable Criteria
Global Bank Rating Criteria (pub. 25 Nov 2016)
https://www.fitchratings.com/site/re/891051
National Scale Ratings Criteria (pub. 30 Oct 2013)
https://www.fitchratings.com/site/re/720082
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1015800
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1015800
Endorsement Policy
https://www.fitchratings.com/regulatory
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version on businesswire.com: http://www.businesswire.com/news/home/20161202005674/en/
Fitch RatingsPrimary AnalystRaphael NascimentoAssociate
Director+55-11 3957-3664Fitch Ratings Brasil Ltda.,Alameda Santos,
700 - 7th floor,Sao Paulo, SP, BrazilorSecondary AnalystEsin
CelasunDirector+55-21 4503-2626orCommittee ChairpersonAlejandro
GarciaManaging Director+1-212-908-9137orMedia RelationsElizabeth
Fogerty, +1 212-908-0526elizabeth.fogerty@fitchratings.com