August 4, 2017 / 1:36 PM / in 12 days

Fitch: Brazil Banks Mostly Ready for Net Stable Funding Ratio

(The following statement was released by the rating agency) NEW YORK/SAO PAULO, August 04 (Fitch) The implementation of a net stable funding ratio (NSFR) rule in Brazil next year should help banks manage funding risks and limit excessive risk-taking, says Fitch Ratings. Furthermore, there should not be a significant direct impact on banks' profitability, growth or business models from meeting the NSFR rule. Brazilian banks have sufficient capacity to adjust structural liquidity as needed. Banks with a majority of assets in the system are well positioned to meet the requirements as indicated by a pro forma domestic measure of liquidity (ILE) reported by the central bank that uses the same NSFR methodology. The NSFR, in conjunction with the 2015 implementation of liquidity coverage ratio (LCR) requirements, should further strengthen local banks' liquidity framework and should be a credit positive for the system. The NSFR will be required for all banks unlike the LCR, which applies to banks with assets above BRL100 billion. The NSFR is a prudential structural liquidity rule that is part of the central bank's implementation of the Basel III regulatory process. The NSFR aims to reduce funding risk over the longer term relative to the LCR by requiring banks to fund their activities with sufficiently stable sources of funding and favoring long-term liabilities such as capital. Furthermore, it intends to measure the banks' ability to absorb shocks and complements the leverage limits and minimum capital ratios that mitigate excessive growth during periods of rapid economic expansion. The NSFR will likely further disincentive certain long-term assets such as real estate, payroll financing and auto loans for banks that lack sufficient access to a broader, diversified and stable source of funding. Most small banks have already been exiting these loan segments owing to existing competitive funding limitations. It could also mitigate credit growth should such growth pressure the NSFR at a given bank. The banking system ILE was reported at 1.07x as of YE16, indicating excess stable funding of about BRL243 billion, equivalent to 20% of long-term, non-earmarked credit portfolio. This suggests that the banking sector's stable funding is at a sufficient level to finance growth without compromising stability levels set by the NSFR. Most large banks had an ILE above 1.0x. Banks with ILE equal to or greater than 1 held 83% of system assets as of YE16. Smaller banks showed greater variation in the ILE with 32 banks (out of 130) having an index measure of less than 1.0, the minimum required by the central bank. However, only six, accounting for 0.9% of system assets, had insufficient liquidity to support short-term stress as indicated by an LCR of less than 1.0. Recent strong stable sector capitalization and subdued credit growth, especially in the larger private banks, will also help the sector manage the NSFR implementation. We expect Brazilian banks to continue favoring greater excess liquidity, lower leverage and weaker loan growth while economic conditions remain sluggish. Even for banks that have targeted growth in lending segments with higher levels of competition, such as payroll and vehicles, the cost of adjustment to the NSFR is likely to be low as it has been dominated by well-capitalized banks with greater access to funding. Greater reliance on small-term wholesale funding means that small and midsized banks will likely face more challenges. However, this will be partially compensated by the more short-term nature of their assets. The central bank's efforts to improve banks' access to funding sources through creating time deposits, which the Credit Guarantor Fund partially insures, have also enabled these banks to lengthen the tenor of their funding bases. Contact: Raphael Nascimento Associate Director Financial Institutions +55 11 3957 3664 Fitch Ratings Brasil Ltda. Alameda Santos, 700 -7 andar, Cerqueira Cesar Sao Paulo +55 11 4504 2216 Claudio Gallina Senior Director Financial Institutions +55 11 4504 2216 Justin Patrie, CFA Senior Analyst, Fitch Wire +1 646 582-4964 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below