Atlas Bank has been granted a BBB- rating and a stable outlook by Equilibrium, an affiliate of Moody’s Investors Service that provides credit rating services in Latin America.
The bank claims that this makes it the first bank in Latin America providing clearing and settlement services to have obtained such a credit rating, which it in turn claims highlights its credentials as a provider of infrastructure and technology services in the region.
Atlas Bank is owned by Atlas Fintech Holdings, which has 20 years of experience providing technology to the financial markets, including for the execution, confirmation and settlement of FX transactions. This experience is cited by Equilibrium as one factor supporting the rating it has given the bank.
In addition, the Equilibrium report notes that the founders also have past experience in setting up a bank in the US and that there is a “degree of specialisation and strategic clarity” amongst the administrators of the bank, which “translates into a solid medium– and long-term management plan” in which it seeks to offer the first electronic prime banking solution in Latin America.
Atlas Bank’s business model will be focused on clearing and settlement services, which Equilibrium says “provides them with a unique competitive advantage” given that many global financial services firms stopped providing FX services to institutional Latin American clients as part of a broader “de-risking” trend following the global financial crisis.
It also describes the bank’s business model as “low risk”, given that its revenues will come primarily from commissions for the use of its platform and the transactions carried out in it and, to a lesser extent, from generating returns on the significant collection of deposits that it is expected to generate on its platform.
Equilibrium says that the technological infrastructure being deployed meets global standards of quality and safety and that it has “a defined and robust contingency plan and established mechanisms to safeguard the security and integrity of information”. Further, it says that it has secured banking lines worth more than USD 1 billion to support confirmation and settlement, and an additional capital contribution of USD 3.5 million in order to meet the necessary expenses as the bank begins its operations.
The report concludes that Atlas Bank could not be given a rating of higher than BBB for three main reasons, all of which are largely related and have to do with the nascience of the business.
Firstly, as a new business, it does not have a large customer base. However, Equilibrium says that “it is common for institutions with little time of operation to experience a high concentration in their deposit base”, and therefore will be more of a concern in the medium term.
Secondly, Atlas Bank has recorded a loss for its first year of operation, which Equilibrium observes “adds some pressure on the bank’s net worth”. But at this point, it is hardly surprising that the bank is set to report a loss for the current fiscal year given that it has not actually launched its platform yet.
And thirdly, Equilibrium says that “since the confirmation and settlement market is a business not widely known in the Latin American market, in addition to being historically associated with stock exchanges and brokers, it will take time to develop it”. It adds that Atlas is also exposed to operational – and in particular technological and security – risks, although it does note that the bank is seeking to mitigate these risks through a variety of controls, recruitment policies and contingency and disaster recovery plans that it has in place.