Fitch Ratings has affirmed
Fitch has also upgraded BOCOM BBM's Viability Rating (VR) to 'bb' from 'bb-'. The Rating Outlook on the long-term ratings is Stable.
The VR was upgraded due to an improved financial profile, higher profitability metrics, sustained asset quality ratios and high capitalization ratios in an improved 'bb' rated Operating Environment. The VR upgrade reflects BOCOM BBM's strengthened Business Profile, which now boasts a more diversified revenue stream and higher operating income. This improvement is partly due to expanded customer and product access as the bank is now part of a larger group.
Key Rating Drivers
IDRs, National Ratings and Shareholder Support Rating
Moderate Probability of Support:
BOCOM BBM's Long-Term Foreign Currency IDR is five notches below
Strategically Important: The support assessment incorporates Fitch's view that BOCOM BBM's activities in
Viability Rating
Cooler but Steady Growth: Fitch expects
Strengthened Business Profile: Fitch upgraded BOCOM BBM' business profile score to 'bb' from 'bb-', recognizing its advancements as a medium-sized foreign commercial bank with a core focus on corporate lending. Its market presence, in terms of total loans, is relatively modest on a national scale. However, Fitch recognizes the bank's enhanced banking franchise, which has seen a notable upturn in recent years. This progress is evidenced by the bank's successful expansion of its revenue streams over the last four years.
Conservative Risk Profile: BOCOM BBM maintains conservative underwriting standards, a reflection of the bank's cautious approach and appropriate risk-based pricing strategy. Credit risk is the main source of asset quality risk for BOCOM BBM. The bank's expanded credit risk, including corporate loan and off-balance guarantees were
Resilient Asset Quality: Fitch upgraded BOCOM BBM's asset quality score to 'bb+' from 'bb'. BOCOM BBM has maintained better asset quality in recent years than domestic peers due to its conservative risk profile, which provides space to absorb expected deterioration from higher interest rates and
Strong Profitability: Fitch upgraded BOCOM BBM's earnings and profitability score to 'bb' from 'bb-'. Over the four years spanning 2020 to 2023, the average of operating profit to risk-weighted assets ratio was 3.2%. Core earnings have steadily strengthened in recent years, helped by growing business volumes, improving revenue mix and cost optimization measures. Fitch expects the bank will keep its profitability ratios stable for the next two years.
Adequate Capitalization: Fitch upgraded BOCOM BBM's capital and leverage score to 'bb-' from 'b+'. Capitalization levels are adequate considering BOCOM BBM's credit risk profile, well managed market risks, good capital flexibility and ordinary support from the parent. As of
Stable Funding: Fitch's assessment of BOCOM BBM's funding and liquidity profile incorporates the benefits it derives from being part of
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
IDRs, SSR and National Ratings
BOCOM BBM's IDRs, National Ratings and SSR could be downgraded if
VR
The VR could be downgraded if the recovery of the Brazilian economy suffers a severe setback, causing a material weakening of the operating environment. In this scenario, pressure could stem from rapidly rising private-sector indebtedness and permanent erosion of business prospects.
The VR could also be downgraded if, contrary to expectations, BOCOM BBM's impaired loan ratio deteriorates above 5%, resulting in earnings deterioration.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
IDRs, SSR and National Ratings
BOCOM BBM's IDRs could be upgraded if
VR
There is limited rating upside at the current level of
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Ex-Government Support Ratings
Key Rating Drivers
BOCOM BBM's Long-Term Foreign and Local Currency IDRs ex-government support (xgs) have been affirmed at 'BB(xgs)' and are one notch below its parent's Long-Term IDR (xgs) of 'BB+(xgs)'.The Short-Term Foreign and Local Currency IDRs (xgs) have been affirmed at 'B(xgs)' and is mapped from its Long-Term IDR (xgs). The ex-government support ratings exclude assumptions of extraordinary government support from the underlying ratings.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Sensitivities
BOCOM BBM's IDRs (xgs) are sensitive to changes in
VR ADJUSTMENTS
The Business Profile score of 'bb' was assigned above the implied 'b' score due to the following adjustment reason: group benefits and risks (positive);
The Asset Quality score of 'bb+' was assigned below the implied 'bbb' score due to the following adjustment reason: concentrations (negative);
The Capitalization & Leverage score has been assigned above the implied score due to the following adjustment reason(s): Capital Flexibility and Ordinary Support (positive).
The Funding & Liquidity score of 'bb-' was assigned above the implied 'b' score due to the following adjustment reason: non-deposit funding (positive).
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
BOCOM BBM's IDRs and National Ratings are driven by support from the
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visitwww.fitchratings.com/topics/esg/products#esg-relevance-scores.
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