OREANDA-NEWS. Fitch Ratings has affirmed the following ratings for Banco Rendimento S.A. (Rendimento):

--Long-Term National Rating at 'BBB+(bra)'; Outlook Stable;
--Short-Term National Rating at 'F2(bra)'.

KEY RATING DRIVERS

The affirmation of Rendimento's ratings reflects its good operational results, even in periods of economic slowdown, and asset quality, both show better than peer average indicators. The ratings also reflect the bank's experience and franchise as a service provider in the foreign currency purchase and sale (forex) market and its conservative posture in credit to small and medium sized companies (SMEs).

The ratings further reflect Rendimento's modest size, with concentrations in assets (the 10 largest clients accounted for 34% of the credit) and in liabilities (25% of the deposits, respectively), typical of niche financial institutions. The ratings also factor operational and image risks -- natural in the foreign exchange market, where the bank strongly operates.

Rendimento's results have benefited from foreign exchange activity, which has provided most (around 75%) of its total revenues and lower pressure on interest revenue in its credit portfolio. Profitability (ROE of 14.7% and ROA of 2.0% in June 2015) has been good and better than peer average (2.4% and 0.6%, respectively). The decrease in the bank's results since 2014 has been due to the lower volume of operations in the foreign exchange market and as a result of credit portfolio reduction (3.4% during the first semester of 2015 and 14.6% in 2014) and, consequently, of its revenues; a trend which should remain into 2016. However, the bank has been more conservative in credit deferrals, taking measures such as realignment of terms and guarantees, which have enabled it to reduce its loan loss provisions. Such dynamics should allow the bank to maintain good results despite the country's recessive scenario.

The bank's credit quality has shown significant improvement since 2013. The loans classified as 'D-H'/total credit portfolio ratio improved to 4.4% in June 2015, against 5.9% in December 2014 and 10.8% in 2013, better than the average (6.4%) of banks with similar ratings. Impaired loans (past due over 90 days) were only 0.3% of the credit portfolio in June 2015 and loan loss coverage was adequate (77.2%). The bank has attempted to maintain both the size and client base of its credit portfolio, which should maintain its good asset quality indicators over the medium-term.

Despite concentrated, funding is stable, with good asset and liability terms matched. Liquidity remains at high levels and covered 30% of total funding in June 2015; however, the bank maintained a high volume of deposits with daily liquidity, which Fitch believes is not prudent. Market risk is low, since Rendimento hedges its foreign exchange operations at BM&FBovespa to eliminate and/or minimize the risks of currency mismatches.

The quality of Rendimento's capital base is good and fully comprises Tier 1 capital instruments, with Fitch's core capital (FCC) ratio at adequate 13.8% in June 2015. The difference between the FCC and the regulatory capital ratio (15.8%) is due to the exclusion from FCC calculation, of two of the group's important companies: Cotacao DTVM (Cotacao) and Agillitas Solucoes de Pagamentos Ltda. (Agillitas), which are segregated from the bank.

RATING SENSITIVITIES

Positive Rating Action: The diversification of revenue sources and balance sheet structure (assets and liabilities) would be viewed as positive and could improve Rendimento's ratings over the medium-term. A sustained improvement of capital ratios, combined with the maintenance of the good profitability and adequate liquidity ratios, in addition to continued low foreign exchange exposure in the capital structure could also be beneficial for the ratings.

Negative Rating Action: The ratings could be negatively affected if results deteriorate or the credit portfolio quality reduces the company's Fitch's Core Capital/risk weighed assets ratio to less than 10%. Increased competition in the foreign exchange segment could also represent a challenge for Rendimento's main source of revenue and impact its ratings.

Founded in 1992, Rendimento is controlled by the Ades family (70%) and by the company's main executives (30%). Its focus is on the foreign exchange market and on credits to PMEs. The group also includes Cotacao, a company focused on the provision of forex services to individuals, and Agillitas, a pre-paid cards administrator. Both companies are segregated from the bank and have been important sources of revenue for the group.