BanReservas under scrutiny by Moody’s and Fitch Ratings
SD. The Banco de Reservas reported a financial performance for 2013 that includes an impressive growth rate of its net earnings of 112.5%, and a strong increase in its income with relation to the costs, which was reflected in an improvement in its banking efficiency indicator of 81% in 2012 to 69.8% last year.
But the risk assessment agencies Moody’s and Fitch Ratings have another story to tell, where they suggest that there was too much makeup on the presentation of such beauty in this state bank.
In their report of 19 December 2013, Moody’s places the Banco de Reservas in a negative perspective, under the degradation of the risk assessment from B2 to B3. They base this negative perspective on the financial weakness of the Banco de Reservas after the refinancing of US$800 million in credits and accounts payable, given to the government through the Ministry of Hacienda.
The risk assessment agency stresses that this refinancing was approved by the National Congress on 4 December 2013 in order for the government to close the fiscal gap.
The agency feels that this represents an additional use by the government of the resources of the BanReservas “that undermines the solvency and liquidity of the bank.” In this perspective, they say that this event points towards the possibility that there might be new and similar restructurings, and they stress that this public bank includes in its balance sheet loans to the public sector for US$1.0 billion, of which US$266 million should be repaid in the first quarter of 2014.
In additions, the dividend payments of the government of US$80 million and their impact on the bank’s capital, contributed to the negative perspective.
Moody’s says that the real exposure of the BanReservas to the government “is disguised” by the fact that the give zero weight to the securities and loans to the public sector. Regarding this, Fitch Ratings says, in its report of September 2013, that if the loans to the public sector were weighted at 100%, the capital indicator would have been just 8.6% as of June 2013, which is half of what was reported: 17.2%.
They explain that an unexpected deterioration in the quality of the assets or the earnings, as well as high disbursements of profits to the government push the indicator of patrimony/assets under 5.5% which could result in a reduction of the rate feasibility which is at present at “B” stable.
Perspectives of BanReservas
Moody’s says that the return to a stable perspective of the risk assessment of BanReservas will depend on a better capitalization together with an improvement in the financial strength of the bank from the point of view of the regulator, which includes its basic capital (Tier 1 ratio), a more coherent and sustainable dividend policy and a significant reduction to the transfer of resources to the government in the form of dividends and loans. However, this credit increased by 21.9% between 2012 and 2013.
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