June 20, 2011
Moody's upgraded Banco Safra's long/short term foreign currency deposit ratings to Baa2/Prime-2, from Baa3/ Prime-3
On 20 June 2011, Moody's upgraded Banco Safra's long/short term foreign currency deposit ratings to Baa2/Prime-2, from Baa3/ Prime-3, and its foreign currency senior unsecured debt ratings to Baa1, from Baa2. These actions were in line with the upgrade of Brazil's country ceilings for foreign currency bonds and deposits, respectively to Baa1 and Baa2. The subordinated debt rating assigned to the US$500million issued in January through the Cayman Branch considers the one-notch subordination from Safra's Baa1 credit fundamental rating, and has a stable outlook. Therefore, the subordinated debt rating of Baa2 is not constrained by the ceiling and has not been upgraded in line with the ceiling. The foreign currency debt rating assigned to Banco Safra remains constrained by the ceiling and thus is has a positive outlook in line with the ceiling, but the foreign currency senior debt rating at Baa1 is no longer constrained by the ceiling and thus has a stable outlook.
Moody's assigns a bank financial strength rating (BFSR) of C- to Banco Safra S.A. (Safra), which translates into a baseline credit assessment of Baa1. The rating is based on Safra's established and relevant franchise and consistent financial fundamentals. The focused strategy as a lender to large and upper mid-size companies and the steady financial policies are supported by a conservative risk approach and experienced management team, that ensures adequate asset quality indicators through the cycles. The ratings were affirmed on September 9, 2010, when stable outlook remained unchanged.
Historically, Safra has sustained a robust liquidity position and financial flexibility, an indication of the secured loan book, largely short-term, as well as the stable deposit base primarily sourced from corporate clients. Based on a conservative cash liquidity and strong risk management guidelines, the bank manages significant securities portfolio that has been gradually increasing position in high-quality private securities that offer attractive yields as the local interest rates reach historically low levels.
The rating also takes into account the challenges related to the continued expansion of the franchise in a highly competitive environment that could translated into asset quality and capital pressures.
Safra's C- BFSR incorporates the strategic importance of the bank's operations to the Safra family, which is well-respected in the international banking world, as well as the likelihood of support from the controlling shareholder. The Safra's family focus continues to be primarily on banking and wealth management, with operations in Brazil, other Latin America countries, the Cayman Islands, Bahamas, Europe, United States and Middle East.
Recent Results
In 1Q11, Banco Safra posted core earnings, measured by pre provisions profits as a percentage of risk weighted assets, stood over 4% on an annual basis, as a result of robust 34% y/y growth and an increase in trading earnings that accounted for 42.46% of income from intermediation. The quarter's performance was influenced by higher provisioning expenses, that doubled in 12 months net of recoveries.
Total assets amounted to R$74.5 billion, up by 18%. The credit portfolio increased 34% to R$ 28.7 billion, with NPLs over 90 days ratio staying at 1% in March 2011. While the bank keep a high cash liquidity position over R$15 billion, the marketable securities book is made primarily of private securities and shares in investment funds, that accounts for 65% of the total book, incrementing risk exposure. Most of the private securities are holding portion of transactions structured by Safra, through its investment banking arm, and the underlying risk are blue-chip companies.
Global Local Currency Deposit Rating
Moody's assigns a global local currency rating of Baa1 for Banco Safra. Additionally, Moody's assesses a low probability of systemic support for the bank in case of a stress condition, hence the rating is not lifted with the application of joint-default analysis (JDA). Proven commitment leads us to consider implicit support from the shareholder, which also supports the rating.
National Scale Rating
Safra is rated Aaa.br/BR-1 by Moody's on Brazil's National Scale. The rating is supported by the creditworthiness in the domestic market. The bank's importance to the national system and clearance systems also supports Safra's Aaa.br national scale rating.
Foreign Currency Deposit Rating
Moody's assigns a Baa2 foreign currency deposit rating for Banco Safra, which is constrained by the country's foreign currency deposit ceiling for Brazil, and thus is likely to follow fluctuations according to the sovereign ceiling. This rating has a positive outlook in line with the ceiling.
Foreign Currency Debt Rating
Moody's assigns (P)Baa1/(P) Prime-2 long and short term foreign currency debt ratings to the bank's existing US$5 billion Global Medium Term Note Program , as well as a Baa1 debt rating to the 3.5% US$300milion senior unsecured notes due in May 2014.
The bank's 10-year US$500 million plain vanilla subordinated debt is rated Baa2, with stable outlook. We note that subordination of the notes was considered by applying a one-notch differential from Safra's Baa1 global local currency deposit rating, per Moody's notching convention. At this rating level, Safra Grand Cayman's foreign currency subordinated bond rating carries a stable outlook.
Source: www.moodys.com