Fitch Ratings has affirmed
The Rating Outlook is Stable.
In addition, Fitch has affirmed ABCBr's Viability Rating (VR) at 'bb-' and the Shareholder Support Rating (SSR) at 'bb'. A full list of rating actions is below.
Key Rating Drivers
IDRs, SSR and NATIONAL RATINGS
Moderate Probability of Support: ABCBr's IDRs, National Ratings and SSR reflect a moderate probability of support from its parent,
Strong Role in
Large Size Relative to Parent:
Intrinsic Credit Fundamentals: ABCBr's assigned 'bb-' VR is in line with its implied VR based on the bank's intrinsic credit fundamentals. The bank's credit portfolio has seen significant growth in the past few years while maintaining a conservative risk appetite toward domestic corporates, resulting in strong asset quality metrics. The bank's capitalization is adequate for its risk profile, and benefits from ordinary support from
Solid, Growing Business Profile: ABCBr is a medium-sized commercial bank, focused primarily on corporate lending and services, investment banking and middle market lending and services. The bank's asset market share is less than one percent on a national basis, but Fitch's assessment of ABCBR's business profile highlights the bank's improved franchise in recent years supported by a well-executed strategy to diversify its sources of revenues, lower costs and lower levels of concentrations in terms of risk and funding. These have translated into incremental improvements in revenue generation and asset growth over the past four years despite a more challenging and highly competitive operating environment.
Conservative Risk Profile: ABCBr's credit standards, in general, are conservative. This is due to the bank's prudent stance and adequate risk-based pricing. Credit risk is the main source of asset quality risks for ABCBr. Lending tickets are typically targeted toward middle-market and large corporates with good risk profiles in the domestic market. The market risk is low and well-controlled.
Adequate Asset Quality: ABCBr has maintained adequate asset quality metrics over many years that compare well with its domestic peers. At
Given the conservative growth that Fitch expects for ABCBr's credit portfolio for the end of 2023, a deterioration in asset quality ratios for the next years is not expected, even with a greater participation in the middle market segment.
Improving Profitability: ABCBr's profitability metrics continued to improve through YE22 and would have been better if not for its very conservative loan loss provisioning. The bank's profitability benefited from improved margins, increases in fee income, and much lower credit costs since 2021, bringing the four-year average to 1.2% by YE22. However, the bank's operating profit/RWAs ratio decreased to 1.6% at 1H23 from 2.2% at YE22 due to increased provisioning expenses related to one impaired loan.
Adequate Capitalization: ABCBr's capital ratios have remained fairly stable over the past few years due in part to modest profit generation and conservative credit portfolio growth, a trend Fitch expects to continue over the medium term. At
Stable Funding: The bank continues to focus on ensuring a stable liquidity position through conservative asset liability management policies to mitigate gaps through hedging and funding diversification. Strategies include the sourcing of longer-term funding from both local and international providers. The bank's liquidity buffers are adequate given limited forthcoming maturities. Fitch does not expect any change to the bank's funding and liquidity strategy over the medium term.
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
IDRs AND SSR
A negative change in Fitch's assessment of
A negative rating action on the parent bank,
A significant deterioration of ABCBr's asset quality that results in credit costs that severely limit its profitability (operating profit to RWA ratio consistently below 1.0%) and ability to grow its capital;
A sustained decline in ABCBr's CET1 ratio below 10%.
Unfavorable changes in ABCBr's credit profile relative to its Brazilian peers could result in a reduction in its National Ratings.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
IDR AND SSR
A positive rating action on ABCBr's parent would result in a similar action on the bank's FC LT IDR and SSR. However, in the event of an upgrade of the parent by more than one notch, the bank's ratings would be constrained by the country ceiling;
The VR could be upgraded if ABCBr sustains an improvement in its CET1 ratio above 12% and operating results/RWA ratio above 2%, while maintaining its current asset quality metrics and reducing loan concentration.
The National Ratings are currently at the top of the National Rating Scale and thus further upgrades are not possible.
The Business Profile score of 'bb-' has been assigned above the implied 'b' Business Profile Score due to the following adjustment reason: Group benefits and risks (positive).
The Capitalization & Leverage score of 'bb-' has been assigned above the implied 'b' Capitalization & Leverage Score due to the following adjustment reason: Capital flexibility and ordinary support (positive).
The Funding & Liquidity score of 'bb-' has been assigned above the implied 'b' Funding & Liquidity Score due to the following adjustment reason: Non-deposit funding (positive).
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.
Public Ratings with Credit Linkage to other ratings
ABCBr's IDRs and National Ratings are driven by support from the
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, visit.
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