Fitch Affirms Banco Votorantim's Ratings
SAO PAULO -- March 26, 2013
Fitch Ratings has today affirmed the ratings of Banco Votorantim S.A. (BV) and
BV Leasing Arrendamento Mercantil as follows:
--Foreign and local currency Long-term Issuer Default Ratings (IDRs) at
'BBB-'; Outlook Stable;
--Foreign and local currency Short-term IDRs at 'F3';
--Viability Rating at 'bb-';
--Support Rating at '2';
--National long-term rating at 'AA+ (bra)'; Outlook Stable;
--National short-term rating at 'F1+ (bra)';
--BRL Senior Unsecured Notes due May 2016, Foreign Currency Rating at 'BBB-'.
BV Leasing Arrendamento Mercantil S.A.
--1st and 2nd Debentures Issuances, National Long-Term Rating at 'AA(bra)'.
KEY RATING DRIVERS - Banco Votorantim
The IDRs and national ratings of Banco Votorantim S.A. (BV) are based on the
support that Fitch believes the bank receives from Banco do Brasil S.A. (BdB;
'BBB'/'AAA[bra]'/Stable Outlook). Fitch considers BV to be strategically
important to BdB, since BV performs important complementary activities where
BdB operates outside its network of agencies.
BV's viability rating is constrained by its recent weak performance, high
leverage and challenges to its asset quality metrics. Also BV's VR considers
its adequate position within its niche market - the auto loans segment - and
the benefits provided by the ordinary support of its shareholders in terms of
liquidity and funding availability.
BV received a BRL2 billion capital injection in June 2012, equally split
between the two shareholders, BdB and Votorantim Financas (VF; controlled by
Votorantim Participacoes S.A., 'BBB'/'AAA[bra]'/Stable Outlook), maintaining
their participation in the bank. Despite the support provided by the
Votorantim Group (VG), the ratings are solely based on the support of BdB,
which has demonstrated its willingness and capacity to support the bank. BdB
has granted BV an interbank credit line of BRL7 billion that has never been
Fitch core capital was 8.7% in December 2012, with high leverage. BV's
capitalization is still negatively affected by tax credits, net losses of BRL2
billion in 2012, and by BRL4.7 billion of Tier II issuances. With losses
expected to continue in 2013, BV's capitalization should be further pressured.
This is mitigated by the decreasing of the credit portfolio in 2012, but loan
origination has increased since end-2012.
Management expects to achieve quarterly break-even by the end of 2013.
Although it is difficult to assess that expectation, Fitch recognizes that the
bank is carrying out the necessary adjustments in consumer loans. BV's results
have been affected by substantial provisions in vehicle financing following
the aggressive expansion during the 2010-2011 period. Moreover, credit
revenues have declined in 2012 due to the reduction in credit origination
since the fourth quarter of 2011.
Impairment loans increased to 10.6% of the total portfolio in December 2012,
from 8.9% in December 2011 and 2.8% in December 2010. Nevertheless, quarterly
data indicate improvements since June 2012, even when considering the credit
portfolio reduction in 2012. BV has been able to reverse this trend by
tightening controls and collection procedures, but the amount of credit deemed
to be of low quality is still significant. Despite the 2012 increase in
delinquency levels of its corporate clients, especially SMEs, levels are still
BV has materially improved its funding profile, which was one of the main
constraints. Even though its cost of funding is higher than large Brazilian
banks due to its wholesale profile, substantial term mismatches between assets
and liabilities have been materially reduced with the issuance of financial
bills - 'letras financeiras'. BdB remains important to BV's funding, given its
acquisition of secured loans totaling BRL9.1 billion from BV as of December
KEY RATING DRIVERS - BV Leasing Arrendamento Mercantil S.A. Issuances
The rating of the issuances of BV Leasing Arrendamento Mercantil, which are
notched down from the supported IDR of BV ('AA+(bra)') reflect the loss
severity of the instrument due to its subordination to senior creditors in
case of liquidation of the entity. Fitch considers that support to those
issuances will be available from its parent BV. Hence the current notching
incorporates only the loss severity in case of liquidation.
RATING SENSITIVITIES - Banco Votorantim
IDRs and National Ratings: Despite the unlikelihood in the short term, any
change in BdB's ratings, or in its willingness or capacity to provide support,
could result in changes in BV's ratings.
Viability Rating: The VR could benefit from the reversal of its weak
performance, expressed by an ROA above 1%, and from the sustainable
improvement in its performance and credit quality metrics. The VR could be
downgraded if there is further deterioration in credit portfolio, reduction in
capitalization, and weak performance.
RATING SENSITIVITIES - BV Leasing Arrendamento Mercantil S.A. Issuances
The National long-term rating of the 1st and 2nd debenture issuances of BV
Leasing Arrendamento Mercantil could be reviewed in the case of changes in
Banco Votorantim's rating. Moreover, although unlikely in the short term, any
changes in BdB's ratings or in its willingness or capacity to provide support
could result in changes in BV's ratings.
Banco Votorantim is the sixth largest private bank focused on vehicle
financing. Headquartered in Sao Paulo, Brazil, BV had consolidated assets of
BRL121 billion (USD60.5 billion) and equity of BRL8.2 billion (USD4.1 billion)
as of Dec. 31, 2012. BV Leasing Arrendamento Mercantil S.A. is a fully
controlled subsidiary of BV.
Additional information is available on www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Assessing and Rating Bank Subordinated and Hybrid Securities' (Dec. 05,
--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);
--'National Ratings Criteria' (Jan. 19, 2011);
--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012).
Applicable Criteria and Related Research
Rating FI Subsidiaries and Holding Companies
National Ratings Criteria
Global Financial Institutions Rating Criteria
Assessing and Rating Bank Subordinated and Hybrid Securities
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Paulo Fugulin, +55-11-4504-2206
Fitch Ratings Sao Paulo
Alameda Santos, 700, 7th floor
Sao Paulo, SP, Brazil
Pedro Gomes, +55-11-4504-2604
Ed Thompson, +1-212-908-0364
Elizabeth Fogerty, +1-212-908-0526
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