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Moody's: Brazil's growing car sales to boost auto captive banks' profitability

Higher-than-expected vehicle sales in Brazil entail greater profitability for local captive auto lenders, as higher demand for new cars will raise demand for loans, Moody's said Jan. 14.

The development is a credit positive for banks such as Banco RCI Brasil SA, Banco PSA Finance Brasil SA and Banco Ford SA, the rating agency said.

Vehicle sales in Brazil rose 14.6% to 2.57 million units in 2018, according to car manufacturing association Anfavea, beating a 13.7% growth forecast. The boost in car sales figures was driven by Brazil's economic recovery, with continued expansion to be supported by historically low interest rates and double-digit growth projections for car sales in 2019, Moody's said.

"Although lower credit costs were the key drivers of improved profitability for rated auto captive banks until mid-2018, we believe that higher revenue will drive results in 2019," Moody's noted. These banks will continue to benefit from rising car demand due to subsidies given by vehicle manufacturers that allow them to offer lower borrowing rates.

Auto loan growth will also be anchored by the banks' robust balance sheets, risk management approach and capital positions, Moody's said. Moroever, the auto loan industry saw lower asset risk in 2018 due to significant improvement costs.

"The three rated auto captive banks recorded average increases in their loan books of 5.3% in the third quarter of 2018, above the 4.5% growth of the industry's auto loans, supporting an increase in their market shares," Moody's said.