Moody's revises outlook of Brazil's bank BMG

Moody's Investors Service revised its outlook for Brazil's Banco BMG, a leader in the payroll-linked loan segment, to negative from stable, as the bank faces challenges to improve its profitability.

"The change in outlook to negative from stable reflects the challenges BMG continues to face to improve earnings generation and capitalization, while it refocus its strategy towards a predominantly payroll credit card banking business," said Moody's, which kept the bank's rating at 'B1.'

"Moody's acknowledges BMG's leading position in this market segment, as well as the better risk profile of payroll credit card operations relative to riskier commercial lending. However, its business model has yet to prove capable of generating sustainable earnings, while the reliance on one line of business will likely reduce revenue diversification, potentially exposing the bank's earnings to volatility."

BMG net profit dropped nearly 30% in the first nine months of 2017, the most recent period available, to 20mn reais (US$6.2mn).