Fitch up­grades Banco Day­co­val’s rat­ings

The Pak Banker - - 6BUSINESS -

Global rat­ing agency Fitch has taken the fol­low­ing rat­ing ac­tions on Banco Day­co­val S.A. (Day­co­val).

Day­co­val’s rat­ing up­grades re­flect the bank’s con­sis­tent track record of per­for­mance, main­tained in dif­fer­ent cy­cles of lo­cal econ­omy, higher busi­ness di­ver­si­fi­ca­tion and com­fort­able liq­uid­ity and cap­i­tal­iza­tion po­si­tions. The bank has recorded con­sis­tent prof­itabil­ity, even dur­ing stress sce­nar­ios, sus­tained by an ad­e­quate as­set pric­ing, strong cost con­trol and low fund­ing cost. It is also worth its pru­dent liq­uid­ity man­age­ment and ad­e­quate as­sets and li­a­bil­i­ties man­age­ment that help to mit­i­gate the bur­den of a less di­ver­si­fied fund­ing base com­pared to larger peers.

Day­co­val has been suc­cess­ful in ex­pand­ing its op­er­a­tions and in­creas­ing prof­itabil­ity since mid-2009. In view of the high delin­quency in cred­its to small and medium-sized com­pa­nies in 2012, the bank ad­dressed its growth to con­sumer credit, mainly to the lower risk pay­roll dis­count loans. The ex­pan­sion into this seg­ment helps to bet­ter di­lute debtor con­cen­tra­tions and also its in­come sources.

Prof­itabil­ity re­mains good and bet­ter than other mid­size banks — de­spite lower lever­age — due to bet­ter ef­fi­ciency and good pric­ing of credit risk, which should con­tinue to have an in­flu­ence on its re­sults, de­spite higher credit pro­vi­sions can re­duce prof­itabil­ity over the short and medi­umterm. In Fitch view the re­cent spike in credit costs may per­sist in the short term while the re­cently ex­panded port­fo­lio ma­tures and also given the less vig­or­ous eco­nomic ac­tiv­ity in Brazil seen since 2012. Day­co­val has been suc­cess­ful to pre­serve its prof­itabil­ity ra­tios based on ef­fec­tive cost con­trols and im­proved mar­gins ben­e­fited by lower fund­ing costs in the re­cent past years Fitch ex­pects that de­spite such in­crease on credit costs, that the bank will be able to post good prof­itabil­ity ra­tios in time with its his­toric av­er­age.

The higher mar­ket delin­quency in 2012 re­sulted in a sig­nif­i­cant de­te­ri­o­ra­tion of the bank’s credit qual­ity, which showed im­paired loan ra­tio at 7.1% of the to­tal in 2012, against the 3.3% recorded in 2011; while its 90 days past due loan ra­tio in­creased to 2% (0.7% in 2011). The de­te­ri­o­ra­tion was more in­tense than in other mid-size banks, de­spite be­ing off­set by higher mar­gins and re­strained by a port­fo­lio re­duc­tion in lower-size com­pa­nies. Given the good qual­ity of the col­lat­eral and the ef­fec­tive work­out of trou­bled loans; credit losses should be lim­ited while its am­ple cap­i­tal base and good prof­itabil­ity lev­els bodes well to help cre­ate ad­di­tional loan loss pro­vi­sions if re­quired.

Day­co­val has been also rel­a­tively suc­cess­ful in in­creas­ing and length­en­ing its fund­ing base, as well as in re­duc­ing its cost, with spe­cial em­pha­sis on the strong in­crease of ‘le­tras fi­nan­ceiras’ (Fi­nan­cial Bills) in 2012. Nev­er­the­less, its fund­ing re­mains con­cen­trated per client and with whole­sale char­ac­ter­is­tics. How­ever, the bank’s con­ser­va­tive ad­min­is­tra­tion of as­sets and li­a­bil­i­ties and its strong cash po­si­tion fairly mit­i­gate the liq­uid­ity risk. As such, the am­ple liq­uid­ity cush­ion man­aged by the bank and the rel­a­tive shorter term of their loans bodes well to match ex­pected short term ma­tu­ri­ties on fund­ing.

Cap­i­tal­iza­tion ra­tio (ba­si­cally Tier 1) and Fitch core cap­i­tal re­main solid, due to the good prof­itabil­ity, in as well as the port­fo­lio sta­bil­ity in 2012. As of De­cem­ber of 2012 the Fitch Core Cap­i­tal ra­tio stood at an am­ple 17.2% roughly in line with the av­er­age of the last two years and above the av­er­age of banks with VR on the ‘bbb’ range. That cur­rent cap­i­tal ra­tios may be un­der­pinned not only with the in­ter­nal cap­i­tal gen­er­a­tion of the bank, but also, thanks to the re­cent and ex­pected con­ver­sion into cap­i­tal of some pre­vi­ously is­sued con­vert­ible de­posits cer­tifi­cates.

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