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Fitch Upgrades Banco Alfa de Investimento S.A.'s National Rating to 'AA (bra)'

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SAO PAULO--(BUSINESS WIRE)--

Fitch Ratings today upgraded the Long-term National Rating of Banco Alfa de Investimento S.A.'s (Alfa) to 'AA(bra)' from 'AA-(bra)' with a Stable Outlook. At the same time, Fitch also affirmed the Short-term national rating at 'F1+(bra)'.

The upgrade to Alfa's Long-term National Rating reflects its consistent performance, which is reinforced by its conservative profile and aversion to risk. This has resulted in stable profits through the economic cycles and also the maintenance of excellent asset quality, high liquidity and comfortable capitalization.

Alfa has recorded stable results throughout the years, even during periods of financial turbulence. With ROA in line with its peers and a low risk exposure resulting from its conservative profile, Fitch deems Alfa's results as better than its peers'. The quality and resilience of the bank's performance reflects its conservative risk management and its relatively lower funding cost. Fitch believes that the pressure on the banks' results from the drop in profit margins and the increase of credit costs will have only a small impact on Alfa.

In 1H'12, Alfa continued to present an excellent loan portfolio and conservative provisioning in spite of the economic deceleration and the increase in delinquency in the Brazilian banking system during 2012. Its payroll deductible loan and auto finance portfolio, which comprised 36% of the loan portfolio in the 1H'12, are focused on high-end customers and are less risky in comparison to the loan portfolio of its peers, which have a wider range of clients. The corporate loan portfolio has a moderate risk profile with relative concentration by borrower but higher volume of short-term operations when compared to its peers.

Fitch considers Alfa's conservative stance with regards to liquidity and its efficient mismatch and asset liability management (ALM) positive. The bank has kept funding costs under control and benefited from the changes in the reserve requirement rules for large banks, expanding and prolonging the average maturity of its funding base. Also, by favoring funding from corporate clients over institutional investors, Alfa's funding is more stable, which additionally reduces its liquidity risk, even considering the relevant concentration of its funding, which is in line with its peers.

The bank's low leverage has led to a comfortable capitalization which also has historically been higher than its peers' average. In Fitch's opinion, this results in a high loss absorption capacity and also in plenty of room for the expansion of its operations over the next periods.

RATING DRIVERS AND SENSITIVITIES

A deterioration in Alfa's asset quality that leads to a sustained period of reduced returns (Operational ROA lower than 1.0%) along with a significant increase in impaired loans (D-H rated loans reaching its peers average) may lead to a negative rating action. In Fitch's opinion, given the concentrated profiled of its funding profile and of its operations with corporate clients, Alfa will have to continue to present ample liquidity ratios and an adequate ALM as to protect its performance against sudden market changes.

Alfa's ratings reflect the consistency of its performance and the low risk associated with its operations. Additional upgrades on the Long-term National Rating are limited due to the size of the bank and assets and liabilities concentrations inherent to a midsized bank.

Controlled by Aloysio Faria, Alfa is part of an integrated financial conglomerate whose institutions operate with a focus on financing to large companies, vehicle financing, payroll deductible lending, asset management and private and investment banking. The administration of the conglomerate is centralized and shares the same control and audit systems. The bank is Alfa Financial Conglomerate's leading institution, which represented 63% of its assets (if intra-company transactions are excluded) and 57% of its capital in June 2012.

Additional information is available at '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:

--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);

--'National Ratings Criteria' (Jan. 19, 2011).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

National Ratings Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885

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Fitch Ratings
Primary Analyst:
Eduardo Ribas, + 55 11 4504-2213
Associate Director
Fitch Ratings Brasil Ltda.
Alameda Santos, 700 - 7th floor
Cerqueira Cesar - Sao Paulo - SP - Brazil
or
Secondary Analyst:
Esin Celasun, +55 21 4503 2626
Associate Director
Fitch Ratings Brasil Ltda.
or
Committee Chairperson:
Peter Shaw, +1-212-908-0553
Managing Director
or
Jaqueline Carvalho, +55 21 4503 2623
jaqueline.carvalho@fitchratings.com
Media Relations, Rio de Janeiro
or
Elizabeth Fogerty, +1-212-908-0526
Media Relations, New York
elizabeth.fogerty@fitchratings.com

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