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Fitch Takes Actions on Financial Institutions Following Brazilian Sovereign Downgrade
December 17, 2015 / 9:14 PM / 2 years ago

Fitch Takes Actions on Financial Institutions Following Brazilian Sovereign Downgrade

(The following statement was released by the rating agency) NEW YORK/SAO PAULO, December 17 (Fitch) Fitch Ratings has taken various rating actions on the following financial institutions: -Banco Bradesco SA (Bradesco) -Itau Unibanco SA (IU) -Itau Unibanco Holding SA (IUH) -Banco Santander Brasil SA (SanBra) -Banco Safra SA (Safra) -Banco do Brasil SA (BdB) -Banco Votorantim SA (BV) -Banco da Amazonia SA (BdA), -Banco do Nordeste do Brasil SA (BNB), -Banco Nacional de Desenvolvimento Economico e Social (BNDES), -Caixa Economica Federal (Caixa), -Banco ABC Brasil SA (ABC) -Banco Daycoval SA (Daycoval) -Banco Industrial do Brasil SA (BIB) -Banco Pine SA (Pine) -Banco Pan SA (Pan) -Brazilian Finance & Real Estate S.A. (BFRE) -Brazilian Mortgages Cia Hipotecaria (BM) -Brazilian Securities Cia de Securitizacao (BS) The rating actions follow Fitch's recent downgrade of Brazil's sovereign rating to 'BB+' from 'BBB-'; Negative Outlook and the revision of the country ceiling to 'BBB-' from 'BBB' (see 'Fitch Downgrades Brazil to 'BB+'; Outlook Negative' at 'www.fitchratings.com'). These actions also reflect factors considered in Fitch's negative outlook for the Brazilian banking industry (see '2016 Outlook: Brazilian Banks' dated Dec. 01, 2015). In Fitch's view, despite the system's relatively comfortable capitalization and liquidity ratios as well as adequate loan loss reserves coverage, the deterioration of the macroeconomic backdrop resulted in a tough operating environment for Brazilian banks during the second half of 2015 that is likely to continue during 2016. The prospects of a prolonged economic recession, higher unemployment, inflation and interest rates and reduced investments will undermine the sector's performance and result in an even more conservative risk appetite. The Long-term Issuer Default Ratings (IDRs) and Viability Ratings (VRs) of BIB and Pine were affirmed, while the Outlooks on their Long-term IDRs were revised to Negative from Stable. The Long-term IDRs of the remaining 17 financial institutions mentioned above were downgraded, and the Negative Outlook (or Negative Rating Watch) on them, maintained. The VRs of seven of these financial institutions (Bradesco, IU, IUH, SanBra, Safra, ABC and Daycoval) were also downgraded. A link to a summary report that details all of the rating actions taken in this review is available below. KEY RATING DRIVERS - IDRS, SUPPORT RATINGS (SRs), SUPPORT RATING FLOORS (SRFs), AND DEBT RATINGS Issuers reviewed in the report are categorized in four groups: 1) Federal government-owned banks, BdB, BdA, BNB, BNDES and Caixa, whose IDRs are driven by sovereign support and where the federal government is either the majority or the full owner and the source of expected support; 2) Issuers whose IDRs are driven by their VRs and that are rated above or equal to the sovereign rating (IUH, IU, Bradesco, Safra, ABC, Daycoval); 3) Issuers whose IDRs are driven by their VRs and that are rated in the 'BB' category (BIB and Pine); and 4) Issuers whose IDRs are driven by institutional support by parents which are rated above or equal to the sovereign rating (SanBra, BV, Pan, BFRE, BM and BS). In the first group, Fitch downgraded all five banks' LT FC and LC IDRs, and if existing, senior debt ratings to 'BB+' from 'BBB-', in line with the downgrade of Brazil's IDRs. All five ratings are aligned with Brazil's sovereign ratings, due to the banks' either majority or full federal government ownership, their key policy role in the implementation of government economic guidelines and, in the case of BdB and Caixa, their systemic importance. The Negative Outlook on the LT IDRs mirrors that on the LT IDRs of Brazil. The downgrade of the banks' SRs to '3' from '2' and SRFs to 'BB+' from 'BBB-' reflect the reduced capacity of the government to support these banks. The second group includes issuers with very strong credit profiles but that are closely linked with the operating environment. In the case of Bradesco, IUH and IU, their ratings are driven by their VRs, which are rated one-notch above the sovereign, reflecting their very strong credit profile. The VRs of the banks in this group were also downgraded following the sovereign rating downgrade as well as their LT FC, LC IDRs, and debt ratings when applicable. The LT IDRs of these banks retain their Negative Outlook, mirroring the sovereign Outlook. Fitch downgraded Bradesco, IUH and IU's SRFs to 'BB' from 'BB+', given the reduced capacity of the sovereign to provide support should it be required. Fitch also downgraded Safra's LT IDRs and senior debt ratings to 'BB+' from 'BBB-' and maintained the Negative Outlooks on its LT IDRs. In the third group, BIB and Pine's LT IDRs were affirmed at 'BB'. The IDRs of these banks are driven by their VRs which were also affirmed. The revision of BIB and Pine's Outlooks to Negative from Stable reflects Fitch's view that the key credit metrics of these two mid-sized banks are highly influenced by the operating environment and could come under further pressure considering Fitch?s expectations of continued deterioration of domestic operating conditions, as evidenced by the negative outlook assigned to the Brazilian banking sector. In the fourth group, SanBra's LT LC IDR was downgraded to 'BBB' from 'BBB+'; Negative Outlook, reflecting the maximum two-notch uplift from the sovereign IDR for issuers with highly rated parents. SanBra's LT FC IDR and senior debt ratings are constrained by Brazil's Country Ceiling of 'BBB-', and therefore were downgraded accordingly. In the same group, BV'd IDRs are driven by expected support from its minority shareholder - BdB. Fitch believes that BV is strategically important for BdB, and maintains a one-notch difference between these two banks' IDRs. Therefore, Fitch downgraded BV's LT IDRs to 'BB' from 'BB+'; Negative Outlook, and affirmed its VR at 'bb-' and SR at '3'. Also in this group, Fitch downgraded Pan and its subsidiaries' (BFRE, BM and BS) LT IDRs to 'BB-' from 'BB' and the Negative Rating Watch was maintained. The rating action reflects the downgrade of Caixa's LT IDRs, as Pan and its subsidiaries' ratings are based on the extraordinary support they could receive from Caixa. Extraordinary support could be provided in the form of credit lines and long-term funding agreements, as well as a new strategic orientation, including management proximity, especially after the difficulties faced by Banco BTG Pactual S.A. (BTG, Long-term IDR 'BB-'; Watch Negative), which is Pan's co-controlling shareholder. Pan's VR was affirmed at 'b'; Negative Watch. KEY RATING DRIVERS - VIABILITY RATINGS (VRs) The VRs of Sanbra, Safra, ABC and Daycoval are constrained by the operating environment. These banks' VRs should move in tandem with the sovereign rating of Brazil. For this reason, all these banks' VRs were downgraded to 'bb+' from 'bbb-', reflecting Fitch's approach of usually limiting bank ratings to the sovereign rating level. The VRs of BIB and Pine were affirmed at 'bb', as their key credit metrics - although under pressure - are still adequate for their respective rating levels. Pressures on the corporate sector may eventually undermine the asset quality of these two banks. Bradesco, IU and IUH's VRs remain one-notch above the sovereign rating due to their strong credit profile. Both banks count on diversified franchises, strong liquidity and capitalization, resilient profitability, satisfactory asset quality and are D-SIBs with impressive market share in several segments in the Brazilian financial services industry. BdB's VR was affirmed at 'bb+' and reflects its leading franchise in multiple business segments, including lending, insurance, asset management and debit/credit cards, and solid funding and liquidity. BdB's VR is constrained by the operating environment and should move in tandem with the sovereign rating of Brazil. BV's VR was affirmed at 'bb-', as its key credit metrics - although under pressure - are still adequate for its respective rating level. Pressures on BV's corporate exposures may eventually undermine the asset quality of this bank. Pan's VR is limited by the still volatile operating performance of the bank, its operating losses, improving but still below-average asset quality ratios, and relatively weak capitalization. The rating was maintained on Rating Watch Negative because of the potential for material negative effects on its intrinsic profile due to the difficult situation faced by its co-controller, BTG. RATING SENSITIVITIES IDRS, SUPPORT RATINGS (SRs), SUPPORT RATING FLOORS (SRFs), DEBT RATINGS, VIABILITY RATINGS (VRs) In addition to specific sensitivities for each institution - please see the individual report of each, available at www.fitchratings.com. The IDRs of all banks included in this release are sensitive to any further changes in Brazil's sovereign ratings and their Outlook. The prospects of a prolonged economic recession, high unemployment, inflation and interest rates, and reduced investments will undermine the banking sector performance and may result in an even more difficult operating environment, particularly for mid-sized banks, which have more concentrated business models than their larger counterparts, larger asset and liability concentrations and wholesale funding bases. Further deterioration in the operating environment could also negatively affect the VRs of each of the banks included in this release if and when such deterioration becomes identifiable on each bank's key credit metrics, such as asset quality, profitability and capitalization. Contact: Claudio Gallina (Primary: BNB; Secondary: BdB, BNDES and Caixa) Senior Director +55 11 4504-2216 Fitch Rating Brasil Ltda. Alameda Santos 700 Sao Paulo, SP, Brazil Eduardo Ribas (Primary: Bradesco, SanBra, Daycoval; Secondary: IUH, IU, Safra, Pan, BFRE, BM, BS, ABC Brasil, BIB, Pine) Director +55 11 4504-2213 Esin Celasun (Primary: BdB, BNDES and Caixa; Secondary: BV) Director +55 21 4503-2626 Fitch Ratings Brasil Ltda. Praca XV de Novembro, 20-401 B, Rio de Janeiro, RJ, Brazil Robert Stoll (Primary: IUH, IU, Safra, BV, ABC Brasil, Pine; Secondary: Bradesco) Director +1 212 908 9155 Fitch Ratings, Inc. 33 Whitehall St. New York 10004 Jean Lopes (Primary: BIB; Secondary: BdA, BNB) Director +55 21 4503-2617 Fitch Ratings Brasil Ltda. Praca XV de Novembro, 20-401 B, Rio de Janeiro, RJ, Brazil Raphael Nascimento (Primary: BdA, Pan, BFRE, BM, BS; Secondary: Daycoval) Associate Director +55 11 3957-3664 Pedro Gomes (Secondary: SanBra) Director +55 11 4504-2604 Committee Chairperson Alejandro Garcia, CFA Managing Director +52 81 8399 9146 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Fitch Takes Actions on Financial Institutions Following Brazilian Sovereign Downgrade here Applicable Criteria Global Bank Rating Criteria (pub. 20 Mar 2015) here Global Non-Bank Financial Institutions Rating Criteria (pub. 28 Apr 2015) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=996974 Solicitation Status here Endorsement Policy here ail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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