B3 S.A. - BRASIL, BOLSA, BALCÃO
Fitch Ratings has affirmed at 'BB'
Fitch has also affirmed at '
Key Rating Drivers
IDRs and Senior Debt
B3's ratings are based on its intrinsic creditworthiness and are highly influenced by its business profile and the Brazilian operating environment. Its Long-Term Foreign Currency and Local Currency IDRs are one notch above the operating environment factor score and sovereign ratings. Fitch views it as unlikely for the differential to widen in the foreseeable future.
B3's ratings also reflect its above-peer profitability and growing margins despite economic downturns over the last few years and moderate risk appetite with strong operational and counterparty risk infrastructure. B3's ratings also incorporate solid management, corporate governance and strategy, adequate capital and leverage ratios, and sound funding, liquidity and coverage.
Operating Environment Outlook Revision: Fitch has revised the Outlook of its assessment of the Brazilian operating environment for Financial Market Infrastructure firms (FMIs), currently scored at 'bb-' to Stable from Negative, given the improving trends in both the GDP per capita and ORI percentile ranks used to determine this score. Fitch projects Brazilian GDP growth of 3.0% in 2022, reflecting surprisingly strong momentum supported by the final stages of post-pandemic economic reopening, stimulus measures and a strong labour market.
Growth is cooling, however, on the back of the lagged effect of substantial monetary tightening, and the expected global deceleration will be an additional drag. Fitch expects growth to slow to 0.7% in 2023, though growth remains sensitive to downside risks.
Dominant Domestic Franchise: B3 benefits from its dominant domestic franchise in trading and clearing services across multiple asset classes in
Strong Operational Risk Management: Fitch considers B3's margining process framework and its safeguard structures robust and well-articulated, which reduces credit and counterparty risks stemming from its central counterparty clearing (CCPs) activities - compliant with IOSCO principles. This considers the collection of guaranty funds and default waterfall procedures, which are viewed by Fitch as being effective. There were no past cases of default. B3's CCPs' margin collateral related to government securities, represented 81% of total collateral, which increases B3 exposure to the sovereign debt and which could pose a risk in the event of sovereign deterioration.
While operational risks have been adequately managed as reflected in good system availability ratios, legal risks remain from tax and civil proceedings. Together these totaled
Sound Profitability: B3 continues to report strong and above industry and regional peer profitability metrics despite ongoing domestic and abroad challenges. Results as of 3Q22 have been impacted by lower trading activities - which in 2020 and 2021 had been supportive of the entity's profitability growth - partially offset by the growth of service business lines. B3's EBITDA margin stood at 67.1% at
Adequate Leverage: B3's leverage has increased since 2021 due to the debt issuance but it remains moderate and commensurate with the rating category, despite being higher than regional peers; internal capital generation has been sufficient to cover operational needs. As of
Funding and Liquidity Remains Adequate: In Fitch's view, B3 has a good funding and liquidity profile. Fitch's core metric for this factor, EBITDA/interest expenses, stood at 4.3x at
National Scale Ratings
B3's national scale ratings are relative to the entity's creditworthiness compared to other issuers within
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
IDRs and Senior Debt
B3's ratings could be downgraded in the event of negative rating actions on the Brazilian sovereign rating and/or from a downgrade of Fitch's assessment of the operating environment factor score;
The ratings could be negatively affected if counterparty risks at B3's CCPs increase to a level beyond accompanying margin and guaranty fund growth, such that it increases the risk of compromising B3's liquidity/equity position or from prolonged and repetitive system outages that result in reputational damage;
Unfavorable decisions/expectations related to existing tax and civil proceedings that weaken B3's financial profile could result in a downgrade of one or more notches;
A material and sustained deterioration in B3's financial performance, translating into sustained EBITDA margins below 50%, gross leverage above 3x and/or interest expense coverage below 3x, could also put downward pressure on ratings.
National Ratings
The national ratings of B3 may be affected by a change in Fitch's perception of the company's creditworthiness with respect to other Brazilian entities rated on the national scale.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
IDRs and Senior Debt
B3's IDRs could potentially be upgraded as a result of an upgrade of
National Ratings
The national scale ratings of B3 are at the highest level on the national scale; therefore, they cannot be upgraded.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
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.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This 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. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
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