Fitch Ratings has affirmed
The Rating Outlook on the long-term ratings is Stable. A full list of rating actions is below.
Key Rating Drivers
IDRs, NATIONAL RATINGS AND SHAREHOLDER SUPPORT RATING
Moderate Probability of Support: BOCOM BBM's IDRs, National Ratings and Shareholder Support Rating (SSR) reflect support from its ultimate parent,
BOCOM BBM's LT FC IDR is rated five notches below that of
Strategically Important: The support assessment incorporates Fitch's view that BOCOM BBM's activities in
VIABILITY RATING
Strengthened Business Profile: BOCOM BBM is a medium-sized commercial bank focused primarily on corporate lending. The bank's market share by total loans is small on a national basis, but Fitch's assessment of BOCOM BBM's business profile highlights the bank's improved banking franchise in recent years that has translated into incremental revenue generation over the past four years despite a more challenging and highly competitive operating environment. The bank's management team has successfully executed its business-expansion plans on the bank's core corporate lending franchise, while strengthening fee-based business units to support revenue diversification. Intra-group benefits from being part of the Chinese BOCOM group supported this plan.
Conservative Risk Profile: BOCOM BBM'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 BOCOM BBM. The bank's expanded credit risk, including corporate debt and off-balance guarantees, amounted to
Resilient Asset Quality: BOCOM BBM has maintained better asset quality in recent years than domestic peers due to its conservative risk profile, which provides space to absorb expected deterioration from higher interest rates and
Strong Profitability: Core earnings have steadily strengthened in recent years helped by growing business volumes, improving revenue mix and cost optimization measures. BOCOM BBM's operating profit-to-RWAs ratio was 3.3% in FY22 and averaged 3.0% over the past four years, supported by sound revenue performance. Fitch expectation is that the bank will keep its profitability ratios stable for the next two years.
Adequate Capitalization: Capitalization levels are adequate considering BOCOM BBM's credit risk profile, well managed market risks and ordinary support from the parent. BOCOM BBM's CET1 ratio of 8.4%, Tier 1 ratio of 10.1% and
Stable Funding: Fitch's assessment of BOCOM BBM's funding and liquidity profile incorporates the benefits it derives from being part of
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
BOCOM BBM's IDRs, National Ratings and SSR could be downgraded if
The VR could be downgraded if the recovery of the Brazilian economy suffers a severe setback causing a material weakening of the operating environment. In this scenario, pressure could stem from rapidly rising private-sector indebtedness and permanent erosion of business prospects.
The VR could also be downgraded if contrary to expectations, BOCOM BBM's impaired loan ratio deteriorates durably above 5% that results in deterioration of its earnings.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
The VR could be upgraded if BOCOM BBM's can sustain a CET1 ratio above 12% and an increase in the operating profit/RWAs ratio to above 4%, while maintaining its current core asset quality metric and reducing loan concentration.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Ex-Government Support Ratings
BOCOM BBM's FC and LC LT IDR (xgs) of 'BB(xgs)' is one notch below its parents' LT IDR (xgs) of 'BB+(xgs)'.The Short-Term IDR (xgs) of 'B(xgs)' is mapped from its LT IDR (xgs). The ex-government support ratings exclude assumptions of extraordinary government support from the underlying ratings.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Ex-Government Support Ratings
BOCOM BBM's IDRs (xgs) are sensitive to changes in
VR ADJUSTMENTS
The Business Profile 'bb-' has been assigned above the implied 'b' Business Profile Score due to the following adjustment reason: Group benefits and risks (positive).
The Asset Quality 'bb' gas been assigned below the implied 'bbb' Asset Quality Score due to the following adjustment reason: Concentrations (negative).
The Funding & Liquidity 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
BOCOM BBM's IDRs and National Ratings are driven by support from the
ESG Considerations
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 https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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