July 16, 2012 / 5:08 PM / 5 years ago

TEXTF-itch affirms Banco do Brasil's IDR at 'BBB'

July 16 - Fitch Ratings has affirmed the following ratings of Banco do
Brasil S.A. (BdB):

--Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BBB';
Outlook Stable;
--Short-term foreign and local currency IDRs at 'F2';
--Support rating at'2';
--Support rating floor at 'BBB';
--Viability Rating at 'bb+';
--Long-term national rating at 'AAA(bra)'; Outlook Stable;
--Short-term nationalRating at 'F1+(bra)'.

The affirmation of the IDRs and national ratings reflect Fitch's belief in the
maintenance of federal government support and the systemic importance of BdB. An
upgrade in Brazil's sovereign rating would translate to an upgrade in the bank's
long-term IDR; conversely, a downgrade in the sovereign rating would result in a
downgrade in the bank's long-term IDR. Changes in the intention to providing
support from local authorities, in the federal government capacity or in its
ratings, could lead to a negative rating action, however Fitch does not believe
this is likely.

The viability rating (VR) is based on BdB's satisfactory performance through
various economic cycles and weaker capitalization than local and global peers.
Fitch believes that BdB's equity ratios are tight and that capital should be
enhanced through high quality Tier 1 injections to support growth. Fitch Core
Capital Ratio is weak at 6.5% as of March 2012. Should the Fitch Core Capital
fall below 5.5%, a review of the VR will result. A VR review could also be
triggered should asset quality deteriorate and/or profitability weaken beyond
Fitch's expectations.

The bank has a strong franchise and market share in many banking segments in
Brazil with a wide branch network, diversified client and earnings base that
contribute to growth and good overall performance despite thinner margins and
lower economy activity since the first half of 2011.

Regardless of its expansion and revenue diversification, BdB returns should
moderate in the near term due to lower net interest margin scenario, mild growth
of administrative costs and losses from Banco Votorantim (BV), which is 49.99%
owned by Banco do Brasil. Therefore, Fitch expects profitability to remain below
that of large local private peers.

BdB proportionally consolidates its participation at Banco Votorantim and
injected BRL1 billion into BV in June 2012. This capital injection will help to
rebuild BV's tight capital base following the recent losses in 2011 and 2012
which resulted from higher credit costs caused by the aggressive auto loan
portfolio expansion in previous years. BV has adopted corrective measures in
loan origination and collection that could translate into positive contributions
to BdB but no earlier than 2013.

BdB's credit quality is a relative strength and has remained better than that of
its private peers even in a more stressed economic scenario. This has resulted
from a high proportion of payroll deductible loans (40% of consumer credit) and
by a large usage of insurance in the agribusiness and protection in the SMEs
portfolios. As a result, impaired loans reached 6.2% of the portfolio in the
first quarter of 2012, which is better than the large private bank peer average
of 9.6%. Reserve coverage of impaired loans was marginally higher at 77.1%
versus the peer average of 73.3%. Fitch expects more challenging economic
conditions in 2012 and beyond with impacts on credit quality and profitability
but does not expect a significant deterioration in BdB's credit portfolio in
comparison to its local peers in the near term.

BdB is the largest Latin American financial conglomerate and Brazilian market
leader in deposits, credit, foreign trade operations and asset management. With
a solid and diversified base of deposits and customers, BdB is considered
locally as safe haven in times of crisis.

Additional information is available at 'www.fitchratings.com' or
'www.fitchratings.com.br'. The ratings above were unsolicited and have been
provided by Fitch as a service to investors.

Applicable Criteria and Related Research:
--'National Ratings Criteria' (Jan. 19, 2011);
--'Global Financial Institutions Rating Criteria' (Aug. 16, 2011).
--'Treatment of Hybrids in Bank Capital Analysis' (July 9, 2012).
--'Fitch: Capital Injection Demonstrates Shareholder Support for Banco
Votorantim' (June 26, 2012).

Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Treatment of Hybrids in Bank Capital Analysis
National Ratings Criteria

Our Standards:The Thomson Reuters Trust Principles.
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