KEY RATING DRIVERS - IDRS AND NATIONAL RATINGS
Fitch has affirmed the ratings of Omni. The ratings are driven by the institution's good systems and risk controls, as well as adequate profitability ratios. They also consider Omni's experience in its main business line - financing autos (cars, trucks and utility vehicles, especially used, up to 25-years old, as well as new and used motorcycles) for the lower purchasing-power classes ('C' and 'D'), a segment less targeted by the competition.
The ratings also consider Omni's small size compared with its peers, its higher leverage, business market, greater susceptibility to fluctuations in the economy, and the finance company's still limited access to long-term funding sources. This presupposes high revenue and business concentrations, typical of institutions with these characteristics.
Omni continued to present operating results slightly above the average of banks and finance companies that focus on this consumer-finance niche. Given the nature of consumer credit to the low-income classes, Omni's delinquency ratios continued to be higher than those reported in traditional financing activities. However, these higher levels have been well-managed and were within the expectations and pricing parameters that Omni has for its successful business model. Its asset quality indicators are well-monitored and offset by the higher interest rates that are charged and mitigated by the size of the transaction and large number of borrowers. Omni's funding is expected to continue to mostly rely on the securitization of assets for receivables-backed investment funds (FIDCs), as well as time deposits with special guarantees (DPGEs). Omni also currently has about
Profitability contributed to an improved capitalization level. Fitch's calculation of core capital-to-total weighted risk assets remained improved from 9.9% in 2012 to 12.6% in 2013. The agency weighs loans sold to FIDCs at 75%. Hybrid capital and debt instruments, considered in regulatory capital as Tier 2, were not included in this calculation, although Fitch recognizes the benefits of this additional long-term source of funding.
The Viability Rating was affirmed and withdrawn to align it with Fitch's rating criteria applied to other non-bank financial institutions. In Fitch's view, given the absence of regular support available for banks, a non-bank financial institution's risk of failure is no different than its default risk captured by the entity's long-term IDR.
RATING SENSITIVITIES - IDRS AND NATIONAL RATINGS
Omni's ratings could benefit from growth in its operational income, increased funding diversification, and a sustained improvement in its asset quality ratios, which include a lower level of charge-offs. Specifically, Omni's ratings may be upgraded if the company manages to preserve its operational ROAA at around 2% within the economic cycle and preserve its capitalization levels; and maintains adequate asset and liability management and loan loss reserves aligned with its asset quality trends. On the other hand, negative pressures on the rating may come from: a decrease in operating earnings and operational ROAA falling below 1.0% combined with a Fitch core capital ratio below 9%; a relevant increase in the level of encumbered assets; and/or a significant deterioration of its asset quality ratios.
Founded in 1968 as Distribuidora de Titulos e Valores Mobiliarios (DTVM), a securities dealer, Omni was converted into a finance company in 1994. At
Fitch has affirmed the following ratings:
--Long-term foreign and local currency IDRs at 'B'; Outlook Stable;
--Short-term foreign and local currency IDRs at 'B';
--National Long-term rating at 'BBB-(bra)'; Outlook Stable;
--National short-term rating at 'F3(bra)';
--Viability Rating at 'b'; affirmed and withdrawn;
--Support rating at '5';
--Support rating floor at 'NF' (No Floor).
Senior notes due 2015:
--Long-term foreign currency at 'B/RR4'.
Additional information is available on www.fitchratings.com.
--'Global Financial Institutions Rating Criteria' (
--National Scale Ratings Criteria (
--Finance and Leasing Companies Criteria (
--Assessing and Rating Bank Subordinated and Hybrid Securities (Jan.31, 2014)
--Recovery Ratings for Financial Institutions (
Recovery Ratings for Financial Institutions
Assessing and Rating Bank Subordinated and Hybrid Securities Criteria
Finance and Leasing Companies Criteria
Source: Fitch Ratings
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