Banco do Estado do Pará S A : Dados Econômico-Financeiros

Update: Banco do Estado do Para S.A.

Primary Credit Analyst:

Henrique Sznirer, CFA, Sao Paulo + 55 11 3039 9723; [e-mail]

Secondary Contact:

Guilherme Machado, Sao Paulo + 30399700; [e-mail]

Table Of Contents

Ratings Score Snapshot

Credit Highlights

Outlook

Environmental, Social, And Governance

Key Metrics

Key Statistics

Related Criteria

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Update: Banco do Estado do Para S.A.

Ratings Score Snapshot

Issuer Credit Rating

BB-/Stable/B

Brazil National Scale

brAA+/Stable/brA-1+

Credit Highlights

Key strengths	Key risks
High share of payroll-deductible loans, which generally have low NPL rates. Revenues coming from few business lines;
Sound liquidity position; and	Geographic and counterparty concentrations; and
Diversified, stable, and low-cost retail funding structure.	Margins have been under pressure due to higher policy rate in
	Brazil.

The bank hasn't published financial statements recently, but available data indicate no material changes to

fundamentals. Banco do Estado do Para S.A. (Banpará) hasn't released yet its audited financials neither for the full 2022 or for the first quarter of 2023. This is because the audit of financial statements hasn't been completed as of the publication of this report. Nonetheless, the Brazilian central bank made available financial information on Banpará for those periods. This information indicates that the bank's fundamentals and recent governance-related developments remain consistent with the stand-alone credit profile that we assigned to Banpará. Moreover, we feel that the current available information is sufficient for the rating maintenance and surveillance. We expect full audited annual financial statements to be made public by the end of 2023.

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Update: Banco do Estado do Para S.A.

Our ratings reflect the bank's better-than-average capital, funding, and liquidity, but also its narrow range of revenue

sources. In our view, Banpará's narrow product and service offerings and limited client base, which mostly consists of the state's public employees and retirees in the state of Pará, act as a drag on its operations. Still, Banpará's sound capital base and liquidity, and its funding advantage, stemming from its close relationship with the state of Pará, partly compensate for business weakness, in our opinion.

Despite moderate lending growth, profitability continued to drop because of lower margins. According to the data from the central bank, Banpará's loan book expanded by about 23% last year, fueled by the payroll-deductible loan segment. However, high policy rates in Brazil tightened Banpara's net interest margins. Consequently, the bank's profitability has continued to shrink: its return on average equity (ROAE), according to the central bank's data, fell to about 10.5% in 2022 from 15.5% in 2021. That was also the lowest annual result since we started to rate the bank in 2013. During the past 10 years, Banpará's ROAE averaged 24.5%.

Profitability should start to recover this year as lower policy rates widen net interest margins. After several quarters of subdued margins, we forecast that ROAE will start to improve this year. In the first quarter of 2023, Banpará's results showed first signs of recovery, as its ROAE rose to annualized 11.3% due to some recovery in margins. Moreover, we believe that Banpará's profitability will continue to improve slowly this year and the next one as policy-rate cuts occur and as the bank reprices its loan book gradually. We forecast ROAE at 12%-14% in 2023. Moreover, we don't expect the lower-than-usual profitability to erode the bank's capital, given our expectation of slower loan growth this year and the next one.

Banpará will continue focusing on payroll lending, despite of its efforts to diversify gradually its business lines.

Banpara has been expanding its business lines, which raised its exposure to mortgages, banking services to small- and mid-size companies, and to credit card receivables. This has been part of the state government's strategy to widen Banpará's banking products offering. However, this process has been very gradual so far, and we expect Banpará to keep focusing on its traditional areas of expertise for the next few years. Payroll loans still represent the majority of Banpará's lending activities, at about 75% of the loan book, and we believe that they will continue to be the main income generator for Banpará.

Slower credit growth this year should mitigate the impact of lower-than-usual profitability on capital. Our assessment of the bank's capital and earnings is based on our forecasted risk-adjustedcapital (RAC) ratio of 7%-8%for the next two years, which is higher than industry average of 6%. Moreover, Banpara's regulatory capital, which entirely consisted of Tier I capital, was 15.8% as of March 2023, comfortably above the minimum threshold. Although capitalization metrics have somewhat worsened in the past year due to lower profitability and considerable growth, capital has remained in line with our rating on Banpará, as we estimate that RAC ratio was at 7.4% at the end of 2022. Moreover, we believe that Banpará's lending should grow slower in 2023, while we expect profitability to start recovering this year, enabling the RAC ratio to remain fairly stable.

Banpará's asset quality metrics remained stable, but continue to be tempered by counterparty and geographic

concentrations. Our assessment of Banpara's risk position mainly reflects its significant geographical concentration, but compensated by the bank's high exposure to payroll loans, which generally generate low loss rates. As of September 2022, Banpara's nonperforming loans (NPLs) and charge-offs were 1.25% and 1.3%, respectively, one of the

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Update: Banco do Estado do Para S.A.

lowest among those of peers, and we estimate that they have remained close to those levels at March 2023. We also

project that NPLs will be at 1.5%-2.0% at the end of 2023.

Relative funding advantage and strong liquidity. We view Banpará's funding as stronger than the Brazilian banking

system's average because of its competitive funding advantage stemming from its status as the main banking entity for

the state government. The bank also has a very comfortable liquidity position, given its track record of large volume of

liquid assets. During the past five years, Banpará's broad liquid assets have represented about 30% of total assets and

40% of customer deposits.

Outlook

The stable outlook on Banpará reflects our view that the ratings are unlikely to change in the next 12 months. We expect Banpará to continue focusing on payroll-deductible loans, while the bank should continue to expand new lending units slowly, such as mortgages and corporate loans. We also expect Banpará to publish its 2022 audited financial statements prior to the end of 2023.

Downside scenario

We could lower our global scale ratings on Banpará if its strategy and role to the government impair its business prospects, financial results, capital levels, funding availability, or liquidity. We could also lower the rating if the bank's credit fundamentals are affected by new developments related to its governance standards.

Upside scenario

We could upgrade Banpará on national scale if its business diversification, relative to those of peers, improves substantially and consistently, while liquidity and funding remain stable. On the other hand, an upgrade on global scale is unlikely because it would depend on an improvement of Banpará's credit fundamentals, such as its business diversification, and on an upgrade of Brazil, the sovereign rating on which constrains Banpará's credit quality.

Environmental, Social, And Governance

We view Banpara's environmental, social, and governance credit factors as currently neutral for the bank's

creditworthiness. With no major environmental and social factors, these components have no relevant effect on the

ratings. We note, however, that we're monitoring recent developments that led to the temporary removal of the bank's

CEO in September 2022, as well as any potential credit impact from such developments. The CEO was fully reinstated

in August 2023 and the bank hired an independent auditor to conduct a review of its internal governance.

Key Metrics

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Update: Banco do Estado do Para S.A.

Banco do Estado do Para S.A. Key Ratios And Forecasts*

		--Fiscal year ended dez-31--
	2020a	2021a	2022e	2023f	2024f
Growth in customer loans (%)	17.5	33.1	23.0	13.0-17.0	8.0-12.0
Growth in total assets (%)	20.4	18.3	21.3	10.0-15.0	8.4-10.3
Net interest income/average earning assets (NIM) (%)	16.7	14.5	11.7	11.5-13.0	12.0-13.5
Return on equity (%)	16.9	15.5	10.4	11.0-15.0	14.0-18.0
New loan loss provisions/average customer loans (%)	2.2	1.9	2.0	2.0-2.5	2.0-2.5
Gross nonperforming assets/customer loans (%)	1.6	1.6	1.4	1.5-2.0	1.5-2.0
Risk-adjusted capital ratio (%)	9.0	8.4	7.4	7.0-7.5	7.0-7.5
*All figures adjusted by S&P Global Ratings. a--Actual.e--	Estimate. f--	Forecast.

Key Statistics

Table 1

Banco do Estado do Para S.A. Key Figures

			--Year-ended Dec. 31--
(Mil. R$)	2022*		2021	2020	2019		2018
Adjusted assets	15,151.3		12,397.3	10,445.3	8,673.2	7,008.7
Customer loans (gross)	10,289.9		8,424.0	6,327.3	5,383.5	4,237.6
Adjusted common equity	1,547.5		1,510.1	1,323.3	1,229.5	1,072.0
Operating revenues	1,242.1		1,668.7	1,553.5	1,632.9	1,560.7
Noninterest expenses	916.1		1,125.4	975.4	1,057.3	928.4
Core earnings	129.8		244.1	245.6	326.4	317.6
*Data as of Sept. 30.
R$--BRL-Brazilian real. N.A.--Not available. N/A--Not applicable. N.M.--Not meaningful.
Table 2
Banco do Estado do Para S.A. Business Position
						--Year-ended Dec. 31--
(%)				2022*		2021		2020	2019	2018
Loan market share in country of domicile		N/A	N/A		0.1	0.2	0.1
Deposit market share in country of domicile		N/A	N/A		0.2	0.2	0.2
Total revenues from business line (currency in millions)	1,242.1		1,664.1	1,545.4	1,629.5	1,544.9
Other revenues/total revenues from business line	100.0		100.0		100.0	100.0	100.0
Return on average common equity		10.4		15.5		16.9	25.1	27.5
*Data as of Sept. 30. N.A.--Not available. N/A--Not applicable. N.M.--Not meaningful.
Table 3
Banco do Estado do Para S.A. Capital And Earnings
							--Year-ended Dec. 31--
(%)				2022*		2021		2020		2019	2018
Tier 1 capital ratio				16.0		18.4		20.9		22.4	24.9

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