Fitch Ratings has assigned a 'B+' long-term Issuer Default Rating (IDR) and a 'B' short-term IDR to Banesco USA (BNSC). A full list of ratings is provided at the end of this release. The Rating Outlook is Stable.
BNSC's strong brand affiliation, solid capital ratios given risk profile, and good liquidity and earnings measures support the current rating levels. Offsetting these factors are the bank's geographic and product concentration, modest franchise value and limited ability to access capital markets. Further, although credit measures to-date are sound, given significant growth rates, the loan portfolio is unseasoned.
The ratings are indicative of its good earnings measures offset by its limited history and track record. Although results have benefited from the company's strong loan growth, while maintaining low levels of net-charge offs (NCOs), Fitch believes that current NCOs and provision levels are not a good proxy for future performance. Furthermore, the company's profitability is mainly spread driven and revenue diversity is limited, although improving in most recent periods.
Fitch believes successful execution of its bank's strategic growth should improve profitability measures. BNSC is focused on growing its balance sheet organically and/or through acquisitions. Given the company's real estate concentration, BNSC is targeting growth in commercial & industrial, correspondent banking and trade finance lending. In May 2012, the company completed an FDIC-assisted acquisition of Security Bank, which added $101 million in assets and $99.1 million in deposits. BNSC also acquired one branch from Great Florida Bank located in Weston and assumed the deposits of $17 million. Given growth plans, capital is expected to be leveraged moderately over the intermediate term.
Despite being a start-up in 2006, the company turned profitable in 2010. Return on assets (ROA) and net interest margin (NIM) metrics reflect a positive trend. For the first quarter of 2012 (1Q12), ROA was 0.53% and NIM was 3.77% compared to 0.21% and 3.59% the same period a year ago. Core earnings also continue to improve demonstrated by pre-provision net revenue (PPNR) increasing to $18.75 million for 2011 compared to $12.78 million for 2010.
Overall, the loan portfolio exhibits sound asset quality, however given rapid growth, credit measures may be understated. Nonetheless, asset quality ratios are much better than the similarly-sized peers in the local market. Despite operating in a challenging real estate market, NCOs have remained manageable. Although reserve levels have declined in most recent periods, it remains sufficient to support its present loan portfolio mix. Fitch notes that BNSC's loan book is concentrated in CRE, similarly to peers in the local market. Offsetting, the portfolio itself is diversified by collateral type.
BNSC's primary funding source is its core deposits, particularly foreign depositors. These deposits tend to be stickier compared to domestic clients, which are more sensitive to interest rates. Although not anticipated, a slowdown in deposit inflows from international customers to the U.S. may impact the company's strategic plans and increase future funding costs.
Although capital is considered appropriate given its asset mix on the balance sheet, the company's ability to access the capital markets (if needed) is considered limited. The principal owners have demonstrated continued support of the bank as evidenced by additional capital contributions since the bank's inception, however, this is not incorporated into the rating nor is it relied upon. Given the company's good earnings performance, it has been successful in generating internal capital and on a risk-adjusted basis capital position is strong. Although Tier 1 RBC has come down, it remains high at 14.08% as of 1Q12.
Established in 2006, Banesco USA (previously named BBU Bank and renamed in June 2011) is a state-chartered bank that is regulated by the FDIC and Florida state banking regulators (Office of Financial Regulations State of Florida). It operates mainly in Miami-Dade county (with six branches) and one branch in Puerto Rico. The bank offers banking services to corporate and individual customers located in its operating markets. Similarly to local peers, real estate financing is the main lending activity. At March 31, 2012, BNSC reported $513.5 million in total assets, $44.1 million in total equity and $443.6 million in deposits.
The U.S.-based bank is affiliated with the 'Banesco' group, which has strong brand recognition in Latin America and is a market leader in Venezuela. Banesco Banco Universal is Venezuela's largest privately-held bank in terms of deposits and assets. The group also includes Banesco, S.A. y Subsidiaria based in Panama and Banesco Banco Multiple, S.A., in the Dominican Republic. BNSC leverages the Banesco brand to gather deposits in its local market. Further, given its ties to the Banesco, BNSC's infrastructure and organization are reflective of a larger institution. As in the other banks in the Banesco group, the management team is made up of individuals with many years of experience in the local markets.
Ratings Sensitivity:
BNSC's financial measures are in-line with current ratings and at the high-end of its potential range. Positive rating drivers would be successful execution on strategic growth initiatives while BNSC delivers improving and sustainable financial measures that are above similarly rated peer averages.
Although not expected, negative credit trends could potentially pressure ratings, particularly if PPNR is not sufficient to absorb potential net losses and capital position weakens.
Reputational risk is also a concern given the bank's ties to Banseco Group domiciled in Venezuela. To-date, the bank has actually benefited from the Banesco brand, despite turmoil in Venezuela, demonstrated by its stable deposit base.
Fitch assigns the following ratings to Banesco USA:
-- Long-term Issuer Default Rating (IDR) 'B+';
-- Short-term Issuer Default Rating (IDR) 'B';
-- Long-term Deposit Ratings 'BB-';
-- Short-term Deposit Ratings 'B';
-- Viability Rating 'b+';
-- Support '5';
-- Support 'NF'.
The Rating Outlook is Stable.
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. 16, 2011);
-- 'Bank Holding Companies' (Aug. 16, 2011);
-- 'Rating Foreign Banking Subsidiaries Higher than Parent Banks' (June 12, 2012).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=649171
Bank Holding Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648612
Rating Foreign Banking Subsidiaries Higher Than Parent Banks or Bank
Holding Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=681270
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.
Contacts:
Fitch Ratings
Primary Analyst
Doriana Gamboa, +1-212-908-0865
Director
Fitch,
Inc.
One State Street Plaza
New York, NY 10004
or
Secondary
Analyst
Sarim Khan, +1-312-368-5459
Associate Director
or
Committee
Chairperson
Christopher Wolfe, +1-212-908-0771
Managing
Director
or
Media Relations
Brian Bertsch,
+1-212-908-0549 (New York)
brian.bertsch@fitchratings.com