Rating Action: Moody's affirms Banco Mizuho do Brasil's ratings, outlook stable
Global Credit Research - 16 Dec 2020
New York, December 16, 2020 -- Moody's Investors Service, ("Moody's") has today affirmed all ratings and assessments of Banco Mizuho do Brasil S.A.'s (Mizuho Brazil), including the long-term global local and foreign currency deposit ratings at Baa3, the long-term global local and foreign currency counterparty risk ratings at Baa3 and the long-term counterparty risk (CR) assessment at Baa3(cr). Moody's also affirmed Mizuho Brazil's baseline credit assessment (BCA) at ba3, and adjusted baseline credit assessment (BCA) at baa3, which incorporates Moody's assessment of very high likelihood of support by the parent company, Mizuho Bank, Ltd. (A1 stable).
A full list of the affected ratings and assessments is provided at the end of this press release.
The ratings affirmation reflects Moody's unchanged view of the bank's standalone credit profile against the backdrop of the economic downturn in Brazil during 2020, caused by the coronavirus pandemic outbreak. At the same time, the ratings incorporate Moody's assessment of Mizuho Bank, Ltd's very high willingness to provide extraordinary financial support to Mizuho Brazil in case of need.
In affirming Mizuho Brazil's BCA of ba3, Moody's acknowledges its track record of solid asset quality metrics, supported by management's conservative underwriting policies and its targeting of select high quality and large corporations. Since the onset of its operations in Brazil in 2015, Mizuho Brazil has not reported delinquencies , and, even during the pandemic, it has had no restructurings nor deferrals. However, the nature of its corporate lending and balance sheet size result in sizable loan concentrations, with its top 10 borrowers accounting for roughly 70% of loans. In addition, the fast pace of growth, including both loans and private securities, over the past three years exposes it to asset quality volatility.
Mizuho Brazil leverages its expertise, global operations and balance sheet to foster bank businesses in Brazil, focusing on short-term trade financing, working capital loans and treasury services to large domestic companies and to subsidiaries of Japanese and other Asian companies operating in Brazil. Mizuho Brazil has also invested in local bonds issued by corporate customers, while leveraging cross-selling opportunities through capital market transactions. This strategy aims at diversifies earning generation and reducing certain reliance on intra-group fees, offsetting the impact of narrowing margins due to low interest rates. Mizuho Brazil has traditionally reported modest profitability metrics with net income averaging 0.9% of tangible banking assets over the past five years. In H1 2020, net income to tangible banking assets was 0.16%, further impacted by lower intragroup fees and compressed margins.
Mizuho Brazil's adequate capitalization and ample liquidity are also credit strengths. Moody's capitalization ratio was 11% in H1 2020, measured as tangible common equity relative to adjusted risk-weighted assets, while liquid assets equaled 42.6% tangible banking assets. However, both capitalization and liquidity ratios have declined over the past three years, following overall loan growth in the period. Risk weighted assets more than doubled since 2017, but the reinvestment of dividends mitigates pressure on capital adequacy. Mizuho Brazil's strict risk management limits and controls established by the parent helps reduce liquidity risk.
Mizuho Brazil's funding is inherently concentrated by investor and type of product, with strong reliance on funding from its parent, which has been used to maintain its competitiveness in the local market. About 50% of total funding was provided by the bank´s parent and the bank´s top ten depositors alone accounted for 73% of total deposits as of H1 2020, higher than 55% in December 2019. Mizuho Brazil's high level of integration and strategic coordination with its parent company with regards to funding and liquidity management as well as risk managements practices support Moody's view that there is a very high probability that the bank's ultimate parent would provide extraordinary support in an event of stress.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if Brazil's sovereign ratings and deposit ceilings were upgraded. An improvement in profitability and diversification of the bank´s earnings and funding could put upward pressure on its BCA, but this would not in and of itself lead to an upgrade of the bank´s deposit ratings.
Conversely, Mizuho Brazil's ratings could be downgraded if either Brazil´s sovereign rating or Mizuho Bank's adjusted BCA were to be downgraded. A reassessment of support from its parent bank could also affect ratings negatively. The ratings could also face downward pressure if aggressive growth were to lead to weakened asset quality and profitability.
The principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Banco Mizuho do Brasil S.A. is headquartered in São Paulo, Brazil, with assets of BRL 7.7 billion and shareholders' equity of BRL 753 million as of 30 June 2020.
LIST OF RATINGS AND ASSESSMENTS
The following ratings and assessments of Banco Mizuho do Brasil S.A. were affirmed:
- Long-term global local-currency deposit rating at Baa3; stable outlook
- Long-term foreign-currency deposit rating at Baa3; stable outlook
- Short-term foreign-currency deposit rating at Prime-3
- Short-term global local-currency deposit rating at Prime-3
- Long-term Brazilian national scale deposit rating of Aaa.br
- Short-term Brazilian national scale deposit rating of BR-1
- Long-term local-currency counterparty risk rating at Baa3
- Long-term foreign-currency counterparty risk rating at Baa3
- Long-term Brazilian national scale counterparty risk rating of Aaa.br
- Short-term local-currency counterparty risk rating at Prime-3
- Short-term foreign-currency counterparty risk rating at Prime-3
- Short-term Brazilian national scale counterparty risk rating of BR-1
- Long-term counterparty risk (CR) assessment at Baa3(cr)
- Short-term counterparty risk (CR) assessment at Prime-3(cr)
- Adjusted baseline credit assessment at baa3
- Baseline credit assessment at ba3
- Outlook, Remains Stable
Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1216309.
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Theresangela Araes Vice President - Senior Analyst Financial Institutions Group Moody's America Latina Ltda. Avenida Nacoes Unidas, 12.551 16th Floor, Room 1601 Sao Paulo, SP 04578-903 Brazil JOURNALISTS: 0 800 891 2518 Client Service: 1 212 553 1653 M. Celina Vansetti-Hutchins MD - Banking Financial Institutions Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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