Banco Pan S.A. 'B+/B' Ratings Affirmed Despite Improving Capital Ratios, Outlook Remains Stable

  • Brazil-based lender, Banco Pan, has been gradually improving its capital base after a capital injection from its shareholder and stronger internal capital generation in the past two years. We now expect the bank to maintain a stronger risk-adjusted capital (RAC) ratio at around 5.5% due to moderate credit growth, controlled costs and provisioning expenses. As a result, we raised our stand-alone credit profile (SACP) on the bank to 'bb-' from 'b+'.
  • Nevertheless, we believe that a longer track record is still required to support a stronger rating assessment, given years of Banco Pan's weak performance, especially comparing with those of peers with similar business profiles and stronger ratings. Moreover, we will continue to monitor the reduction of the bank's reliance on the stable funding lines from Caixa Economica Federal, while Banco Pan also slows the pace of the sale of its payroll lending portfolio to Caixa.
  • As a result, we're affirming our 'B+/B' global scale and 'brAA-/brA-1+' national scale ratings on Banco Pan while the outlook remains stable, because we believe the bank will continue to post stable bottom-line results, but its reported return on equity (ROE) still underperforms those of its peers in the next 12 months.
SAO PAULO (S&P Global Ratings) April 4, 2019--S&P Global Ratings affirmed its 
'B+/B' global scale and 'brAA-/brA-1+' national scale ratings on Banco Pan 
S.A. The outlook remains stable. At the same time, we revised the bank's SACP 
to 'bb-' from 'b+'.

In the past few years, Banco Pan has been overhauling its strategy toward its 
core business, by focusing on payroll deductible and auto loans while reducing 
sharply its operating costs. As a result, the bank posted a recurring 
bottom-line result of R$221 million in 2018 after years of weak financial 
performance. In addition to stronger internal capital generation, Banco Pan 
also received a R$400 million capital injection from its shareholder in order 
to support its regulatory capital ratio that was under pressure due to 
regulatory deductions related to deferred tax assets (DTAs) and its Tier II 
subordinated debt.

After the capital injection approval in April 2018, which returned the bank's 
regulatory capital ratio to a comfortable level, and a year of stronger 
internal capital generation through recurring profits after reducing operating 
costs, the RAC ratio reached 5.6% by the end of the year. We expect the bank 
to remain profitable while focusing on less risky lending segments, such as 
payroll deductible and auto loans, and maintaining its RAC ratio around 5.5% 
in the next two years. As a result, we revised our assessment of the bank's 
capital and earnings to moderate from weak.
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