Fitch Affirms Banestes Ratings
KEY RATING DRIVERS
Banestes' Issuer Default Ratings (IDRs) are driven by its 'bb-' Viability Rating (VR), which reflects the bank's regional franchise, adequate overall financial profile with better-than-its-peers earnings generation, liquidity and capitalization and stable funding sources very similar to those of its regional peers. The bank's asset quality is slightly inferior to its peers mostly due to the composition of its loan book, which includes a more representative SME lending portfolio, given the characteristics of the companies operating in the state of Espirito where the bank is located.
Banestes' business model relies on low-cost retail funding, provided by its branch network, mainly in the state of Espirito Santo. The bank counts on a reasonably well diversified product offer that reduces its dependence on credit related revenues when compared with its peers. The bank has also tried to cautiously diversify its funding base by issuing Financial Bills (Letras Financeiras) in the local market and increasing its funding in real estate credit bills (LCIs).
A change in Fitch's internal analysis of Banestes' main controlling shareholder, the Estado do Espirito Santo (EES), would impact the bank's VR, as Fitch sees limited room for placing Banestes' VR above its parent's internal assessment.
The Rating Outlook on the bank's Long-Term IDRs is Negative, reflecting the fact that as a retail bank Banestes' VR would be impacted by any additional deterioration of the operating environment that could lead to a sovereign downgrade. Such a scenario would also impact Fitch's internal analysis of EES and consequently Banestes' VR and IDRs.
The Support Rating of '4' reflects a moderate probability of support from its controlling shareholder, EES. In Fitch's opinion, Banestes is strategically important for EES, acting as its main tax-collecting agent, carrying out transfers to municipalities, and is responsible for the state's cash management. In addition, state public entities, which the bank provides services and grants credit to suppliers, as well as special payroll deductible loans to public servants, generates an important part of the bank's business.
EES controls 92% of Banestes' capital. The bank's activities are concentrated in EES, where it holds a market share of 46% of time deposits and 15% of loan operations, with a network of 132 branches, in all of the state's 78 cities.
Banestes' VR is sensitive to a change in Fitch's assumptions regarding exposure to regional risk, capitalization and credit quality. The VR could be downgraded if Banestes' credits past due over 90 days rises above 6% and/or the Fitch Core Capital (FCC) ratio falls below 10%.
Fitch's internal analysis on the State of Espirito Santo could affect the bank's ratings. Therefore, Banestes' ratings would be impacted by any change in these states' financial strength and/or in its willingness to provide support to these subsidiaries.
Fitch affirms the following ratings:
Banestes S. A. - Banco do Estado do Espirito Santo's (Banestes):
Long-Term Foreign and Local Currency IDRs at 'BB-'; Outlook Negative;
Short-Term Foreign and Local Currency IDRs at 'B';
Long-Term National Rating at 'A+(bra)'; Outlook Stable;
Short-Term National Rating at 'F1(bra)';
Support Rating at '4';
Viability Rating at 'bb-'.