Fitch Affirms Banco Rendimento S.A.'s Ratings; Outlook Stable

RIO DE JANEIRO & SAO PAULO--()--Fitch Ratings affirmed, today, the following Long-Term and Short-term National Ratings for Banco Rendimento S.A. (Rendimento):

--Long-Term National Rating 'BBB+(bra)'; Outlook Stable;

--Short-Term National Rating 'F2(bra)'.

KEY RATING DRIVERS

The affirmation of Rendimento's National Ratings reflects its good recurring operating results; which is in line with the its profile, even in periods of economic slowdown. The ratings also reflect the bank's experience and expertise as service provided in the foreign exchange market and its operation in loans to small and medium-sized companies (SMEs).

The ratings also reflect the bank's modest size, with asset concentrations (the 20 largest customers accounted for 46% of the credits), as well as liability concentrations (the 20 largest investors represented around 25% of the deposits), typical of niche institutions, which should persist. The ratings further incorporate concerns in relation to operational and forex market image risk due to the bank's strong operation in this segment.

Loans classified between 'D-H' showed improvement during the first half of 2014 and reached 7.9%, against 10.8% in 2013, but still remain at a high level. In view of increased delinquency in the small and medium-sized companies (SMEs), the bank reduced its loan exposure by around 15% during the first half of 2014 and 11% in 2013 and a significant improvement was recorded in coverage levels (84% as of June 2014 against 44.6% in 2013).

Due to problems faced in credit in recent years, the foreign exchange service provision continued to be the bank's main source of revenue. To minimize the risks of rates and currencies mismatches, the bank hedged its forex operations at BM&FBovespa. As the government increased the IOF (Tax on Financial Operations) on transactions with pre-paid credit cards to 6.38%, revenues have migrated to the sale of paper money. Profitability indicators decreased in the first half of 2014, with the lower volume of pre-paid cards and, mainly, due to its reduced credit exposure, but remain at adequate levels when compared to peers.

Funding, despite concentrated, is stable with terms compatible with assets. Liquidity remained at an adequate level and covered around 30% of third-party deposits in June 2014. The quality of Rendimento's capital base is good and fully comprises Tier 1 capital instruments, with Fitch core capital ratio at adequate 12.1% in June 2014, without incorporating the two important group companies: Cotacao DTVM (Cotacao) and Agillitas Solucoes de Pagamentos Ltda. (Agilitas).

Rendimento was founded in 1992 and, together with its affiliates, is 70% controlled by the Ades family and 30% by its main executives, with focus on intermediation activities in the currency market. Rendimento's controlling group also operates with complementary businesses which are not consolidated in the bank, as Cotacao, focused on providing foreign exchange services to individuals, and Agilitas, manager of pre-paid cards. Both have been relevant and increasing revenue sources for the group.

RATING SENSITIVITIES

Positive Rating Action: Rating upgrades are limited over the medium-term, unless structural changes are made to the diversification of revenue, assets and liabilities, on a consistent basis. The significant strengthening of the bank's revenue sources and balance sheet structure would be positive for the ratings. A sustainable capital ratio improvement, combined with maintenance of good profitability and adequate liquidity ratios, besides the continuation of low forex exposure in the capital structure, could benefit Rendimento's ratings.

Negative Rating Action: The ratings could be negatively affected in case of deterioration in loan portfolio quality capable of reducing Fitch core capital ratio/risk weighed assets to less than 10%. Competition in forex segment has been increasing and could be a challenge for Rendimento's main revenue source, thus impacting its ratings, if the bank loses competitiveness.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Methodology' (Jan. 31, 2014);

--'National Scale Rating Methodology' (Oct. 30, 2013).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

National Scale Ratings Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=934515

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
Jean Lopes
Director
+55 - 21 - 4503-2617
Fitch Ratings Brasil Ltda.
Praca XV de Novembro, 20 - Room 401 B
Centro - Rio de Janeiro - RJ - CEP: 20010-010
or
Secondary Analyst
Pedro Gomes
Director
+55-11-4504-2604
or
Committee Chairperson
Franklin Santarelli
Managing Director
+1 -212-908-0739
or
Media Relations
Jaqueline Carvalho, Rio de Janeiro, +55 21 4503 2623
jaqueline.carvalho@fitchratings.com
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Jean Lopes
Director
+55 - 21 - 4503-2617
Fitch Ratings Brasil Ltda.
Praca XV de Novembro, 20 - Room 401 B
Centro - Rio de Janeiro - RJ - CEP: 20010-010
or
Secondary Analyst
Pedro Gomes
Director
+55-11-4504-2604
or
Committee Chairperson
Franklin Santarelli
Managing Director
+1 -212-908-0739
or
Media Relations
Jaqueline Carvalho, Rio de Janeiro, +55 21 4503 2623
jaqueline.carvalho@fitchratings.com
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com