Morningstar is initiating credit coverage of Banco Santander Brasil BSBR with an issuer rating of BBB+. Banco Santander Brasil is the third-largest non-government-controlled bank in Brazil. It has around $250 billion in assets, more than 2,000 branches, and roughly a 10% deposit and loan market share. Commercial loans constitute about 70% of its $100 billion loan book, and credit for individuals make up the rest. Traditional commercial banking provides about four fifths of the company's core earnings, while global banking is responsible for 15%; asset management and insurance make up the balance. Out of the big three non-government-controlled Brazilian banks, Santander Brasil boasts the highest capital base, with Tier 1 capital of almost 19% and tangible common equity making up more than 11% of tangible assets. Spain's Grupo Santander STD owns 80% of Santander Brasil's shares, giving the Spanish conglomerate control on any voting and corporate governance matters.
In our Stress Test analysis, we assigned a below average underwriting rating for the majority of Santander Brasil's loans and securities. While Santander Brasil has a similar underwriting profile to other Brazilian banks, the volatile nature of emerging market loans leads to the below average rating. Santander Brasil received a score of good in the Stress Test as its very strong starting capital position and earnings power mitigated the loss of capital under our stress-case assumptions. Santander Brasil achieved a very good Solvency Score due to its strong capital, sound reserves, and earnings power. We awarded Santander Brasil a fair Business Risk score as its size and narrow economic moat were offset by mediocre scores in the rest of the metrics. These factors led to a rating of BBB+.