Global Credit Research – 26 Sep 2013
Buenos Aires City, September 26, 2013 — Moody’s Latin America today downgraded the bank financial strength rating (BFSR) of Banco de la Provincia de Córdoba S.A. (Banco de Córdoba) to E from E+ (plus), lowering the baseline credit assessment (BCA) to caa1 from b3. Moody’s affirmed the global local-and foreign currency deposit ratings of B3/Not Prime and Caa1/Not Prime respectively. In addition, Moody’s also downgraded the national scale local and foreign currency deposits rating to Baa2.ar from A2.ar, and to Ba3.ar from Ba1.ar, aligning the ratings to those of the bank’s parent, the Province of Córdoba.
The outlook on the bank’s local currency deposit ratings remains negative, given the negative outlook on the Province of Córdoba’s ratings.
The following ratings of Banco de Córdoba were downgraded:
Bank Financial Strength Rating: to E from E+
Long-term National Scale local-currency deposit rating: to Baa2.ar from A2.ar
Long-term National Scale foreign-currency deposit rating: to Ba3.ar from Ba1.ar
The following ratings of Banco de Córdoba were affirmed:
Long- and short-term global local-currency deposits: B3/Not Prime
Long- and short-term foreign-currency deposits: Caa1/Not Prime
RATINGS RATIONALE
In lowering Banco de Córdoba’s standalone rating by one notch, Moody’s incorporates Banco de Córdoba’s still-weak capitalization level, as evidenced in the 5.6% Tier 1 ratio reported in June 2013. Banco de Córdoba received a capital injection from the province of Córdoba of ARS$100 million in 2011 and has been continuously capitalizing its earnings. The bank’s Tier 1 ratio has improved to 5.6% as of June 2013, from 3.8% as of year-end 2012 and 2.1% as of year-end 2011. Notwithstanding the improvement, Moody’s noted that weakening credit conditions and decelerating business growth will likely affect earnings generation and maintain capitalization under pressure in the coming quarters.
Banco de Córdoba’s profitability and core earnings power derive primarily from its role as the financial agent of the province of Córdoba, Moody’s acknowledges, which owns a 100% of the bank and guarantees its operation, and also from its business with the private sector. The bank is the leading financial institution in the Province of Córdoba with strong deposits and loan market shares of 31.7% and 24.8% as of May 2013, despite a low market share of 1.8% and 1.6% respectively country-wide. In its role as financial agent, the bank grants loans and provides deposit services to the provincial Treasury, its public employees and retirees, while benefiting from low-cost funding. Despite its established loan and deposit business that generates stable interest margins of 10%, the bank reported 17% lower profits in June 2013 relative to the net income it registered in June 2012, largely because of higher gross revenue taxes and income taxes, together with larger provisions against credit losses, which were up 200% in 12 months. Moreover, Moody’s notes that Banco de Córdoba’s efficiency metrics remain weak, as operating expenses absorbed 81.8% of income, largely reflecting larger personnel expenses and lower net income.
Moody’s highlights that Banco de Córdoba’s moderate nonperforming loan ratio of 3.7% as of 1H2013, above the 3.6% ratio reported at year-end 2012, is influenced by the 26% year-over-year loan growth, although reserve coverage is relatively high at 90.6% in June 2013.
The B3 global local currency deposit rating of Banco de Córdoba derives from the caa1 Baseline Credit Assessment (BCA) and Moody’s assessment of the high probability of parental support to be provided by its shareholder, the Province of Córdoba, rated B3 with negative outlook, that generates one notch of uplift from the bank’s BCA. The negative outlook on the bank’s local currency deposits derives from the negative outlook on the parent’s ratings.