May 8, 2017 / 2:32 PM / 6 months ago

Fitch: Brazil NPLs Near Peak, but Bank Outlook Still Negative

(The following statement was released by the rating agency) NEW YORK/SAO PAULO, May 08 (Fitch) Brazilian banks' first-quarter earnings results point to early signals of nonperforming loan (NPL) stabilization that could mark the beginning of an inflection point, says Fitch Ratings. However, whether this will translate into a sustained trend remains highly uncertain. Fitch maintains that the operational environment will stay deeply challenging, with asset quality deterioration continuing to be a key risk in 2017. There will also be continued performance differentiation between private and public banks. Data from Brazil's central bank through to March 17 showed the system NPL ratio (90 days) increased only marginally to 3.8%, up from 3.7% three months earlier. Corporate NPLs were the driver, rising by 0.3 ppts in the quarter. However, early NPLs - loans overdue 15 days-90 days - fell 0.5 ppts to 4.3%; this could indicate a broader turning point for the segment. Retail portfolio NPLs also remained flat at 4%, which is notable as seasonal factors tend to weigh on this segment in the first quarter. NPL ratios are stabilizing at a time when loan portfolios continue to contract, meaning that the improvement is not due to an expansion in lending but to factors affecting the ratio's numerator. Average return on average equity (ROAE) for Bradesco, Itau and Santander rose to 18.7% in 1Q17 versus 16.6% a year earlier, demonstrating solid earnings for the large private banks. This was despite weaker revenue generation from lower lending volumes. Lower provisioning was a key factor driving the improved earnings, with double-digit year-on-year percentage declines for each of the three banks. The bulk of major bad loan exposures had already been provisioned for in 2015 and 2016, which helped earnings even as aggregate NPLs rose slightly in 1Q17. As lower provisioning was the principal driver, the earnings trend could continue even if NPLs tick higher in the coming quarters. Fitch believes the trends for public banks and large private lenders will not necessarily be the same. Private banks have likely been more proactive in provisioning, especially for large problematic corporate exposures. Should it occur, a sustained NPL recovery at the private banks would likely be faster relative to public banks. Public banks' higher exposure to weaker credit segments and lower loan growth will be factors in slowing the recovery in their NPL ratios versus their large private counterparts. Fitch maintains a negative sector outlook and Ratings Outlook for Brazilian banks in 2017. The operational environment will likely be a contributing factor to broader credit pressures and risks to asset quality, profitability and growth. Even if the recent NPL stabilization, solid earnings and falling provisions mark the beginning of a broader inflection point for asset quality, the process will only be gradual and dependent on the macroeconomic environment. Despite some positive signs, Fitch believes the weak macro environment is the primary driver of banks' caution on their loan books and why credit demand continues to be weak. Average credit growth guidance is just 2% for the three largest private banks this year, and this is from a very low base in 2016. Quarterly results for individual banks underscore this with credit declining or, at best, remaining flat. After two years of contracting GDP growth, private banks have become much more selective in their loan allocations. Fitch believes the recent trend in NPLs is much more a consequence of stricter and more accurate underwriting standards than improvements in companies' and individuals' credit profiles or cash flows. Contact: Raphael Nascimento Associate Director, Financial Institutions Fitch Ratings Brasil Ltda. Alameda Santos, 700-7 andar, Cerqueira Cesar Sao Paulo +55 11 3957 3664 Claudio Gallina Senior Director, Financial Institutions +55 11 4504 2216 Justin Patrie, CFA Senior Analyst, Fitch Wire +1 646 582-4964 33 Whitehall Street New York, NY Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below