New York, June 01, 2021 -- Moody's Investors Service ("Moody's") has today affirmed all ratings and
assessments assigned to Banco Nacional de Desenvolvimento Economico e
Social - BNDES, including the bank's baseline credit assessment
(BCA) of ba2 as well as its long-term global scale deposit rating
of Ba2, for local and foreign currency. At the same time,
Moody's also affirmed the Ba2 long-term local currency issuer
rating assigned to its subsidiary BNDES Participações S.A.
- BNDESPAR. The outlook remains stable.
A full list of the affected ratings and assessments is provided at the
end of this press release.
RATINGS RATIONALE
By affirming BNDES' ba2 BCA, Moody's acknowledges the bank's
role as a source of long-term project financing for infrastructure
projects in Government of Brazil (Ba2 stable) and its increasing importance
in assisting the strategic pipeline of privatizations and concessions
of the federal government, BNDES' sole owner. The ba2
BCA also reflects BNDES' focus on development financing, supported
by a lending strategy that is aligned to the bank's policy mandate.
During the past 5 years, a more selective use of BNDES' balance
sheet by its management has contributed to reinforce capitalization and
liquidity buffers. The BCA also incorporates the bank's superior
asset quality fundamentals, resulting from a portfolio largely comprised
of loans to low risk financial intermediaries.
During the coronavirus pandemic, BNDES has focused on facilitating
credit access to companies that have been more affected by business disruption,
particularly small and medium enterprises (SMEs). The bank's
response to the crisis has been different from its role in the 2014 recession,
when it mainly originated subsidized loans to large companies.
While borrower concentration continues to add volatility to asset risk,
with the 11 largest borrowers representing one quarter of direct loan
exposure, the problem loan ratio stood at just 0.1%
in March 2021, below the 0.4% reported one year prior.
The low level of problem loans reflected the good performance of its portfolio
after loan payment holidays finished in year-end 2020. At
their peak in 2020, loan holidays accounted for 44.5%
of total loans. In May 2021, BNDES began offering new loan
deferrals to SMEs with an estimated impact of BRL 2.9 billion,
which will likely prolong asset risk pressure due to uncertainties regarding
potential intermittent restrictions to social mobility that could continue
to affect small businesses. However, the bank's strong
cushion of loan loss reserves, at more than 30 times problem loann
in March 2021, help to mitigate potential future weakening in asset
risk.
The ba2 BCA also incorporates the bank's modest recurring earnings
generation, which is aligned to its role as development bank.
In March 2021, net income to tangible banking assets reached 5.3%,
as opposed to 3.1% one year before, largely supported
by extraordinary gains related to divestment of equity participation in
domestic large companies. The reduction in equity holdings is part
of the bank's strategic repositioning and balance sheet downsizing
that will continue in the next 2 years.
BNDES keeps its commitment to the National Treasury to gradually amortize
BRL116.2 billion of owed funds as of March 2021, including
a BRL13.5 billion hybrid capital instrument. The bank's
liquidity position, at 32% of tangible banking assets in
March 2021, will likely reduce because of this amortization schedule.
However, as the bank continues to pursue a more moderate lending
operation, compared to what was seen until 2015, and the bank
continues selling equity participations, further liquidity needs
will also diminish. Additionally, BNDES's capitalization
has increased over the last 5 years as a result of lower dividend payout
when compared to 2009-2015 period and a decline in loan disbursement.
In March 2021, the bank's tangible common equity (TCE) to
risk weighted assets (RWA) ratio stood at 20.4%.
After adjusting the ratio to exclude the hybrid capital instruments,
the ratio falls to roughly 14%, still above the average TCE/RWA
ratios for many Brazilian banks of 9.3%.
We assess BNDES as a government-backed bank because of its strategic
importance to the federal government and its whole ownership by the National
Treasury. However, the bank's ratings do not receive
any uplift from government support as the bank's standalone BCA
is positioned at the same level of Brazil's ratings.
The affirmation of BNDESPAR's ratings is aligned to the affirmation of
the Ba2 deposit ratings assigned to its parent company and sole shareholder
BNDES. BNDESPAR's main role is to support the Brazilian capital
markets through minority and temporary equity investments in the corporate
sector, as well as investments in fixed income instruments.
The firm has an investment portfolio comprised of equity participation
and securities issued by large domestic government and private corporations,
allocated according to BNDES' investment strategy. As March 2021,
BNDESPAR reported net income of BRL1.4 billion, reversing
net loss in the same period of 2020, by benefiting from equity dividends
and divestments in the period.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
BNDES' ratings are aligned to Government of Brazil's Ba2 sovereign
rating, reflecting the close interlinkage between BNDES' standalone
creditworthiness and the sovereign's credit position and economic potential.
A positive move in the Brazil's sovereign rating could trigger an upward
movement in BNDES's ratings. Upwards pressures on BCA could arise
from the maintenance of a consistent business strategy that reflects on
the maintenance of strong asset risk and capital ratios.
Conversely, BNDES' BCA could be downgraded if the bank's financial
flexibility weakens, as a result of a steady deterioration in the
bank's asset quality fundamentals, which could lead to a direct
impact to capitalization. Downward pressures to BNDES' deposit
and senior unsecured debt ratings could also arise from a downgrade of
the government bond rating.
BNDESPAR is fully owned by BNDES and, as such its ratings are intertwined
with the bank's ratings. Positive or negative movement on BNDES'
ratings would also trigger changes to BNDESPAR' issuer ratings.
METHODOLOGY USED
The principal methodology used in these ratings was Banks Methodology
published in March 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1261354.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
BNDES is headquartered in Rio de Janeiro, Brazil, and reported
BRL 737 billion in assets and BRL 114 billion in shareholders' equity
as of 31 March 2021.
BNDESPAR is headquartered in Rio de Janeiro, Brazil, and reported
BRL 110 billion in assets and BRL 102 billion in shareholders' equity
as of 31 March 2021.
LIST OF AFFECTED RATINGS AND ASSESSMENTS
The following ratings and assessments of Banco Nacional de Desenvolvimento
Economico e Social - BNDES were affirmed:
- Long-term global local currency deposit rating of Ba2,
stable outlook
- Short-term global local currency deposit rating of Not
Prime
- Long-term global foreign currency deposit rating of Ba2,
stable outlook
- Short-term global foreign currency deposit rating of Not
Prime
- Senior Unsecured foreign currency debt of Ba2, stable outlook
- Long-term global local currency counterparty risk rating
of Ba1
- Short-term global local currency counterparty risk rating
of Not Prime
- Long-term global foreign currency counterparty risk rating
of Ba1
- Short-term global foreign currency counterparty risk rating
of Not Prime
- Long-term Brazilian national scale deposit rating of Aa1.br
- Short-term Brazilian national scale deposit rating of
BR-1
- Long-term Brazilian national scale counterparty risk rating
of Aaa.br
- Short-term Brazilian national scale counterparty risk
rating of BR-1
- Baseline credit assessment of ba2
- Adjusted baseline credit assessment of ba2
- Long-term counterparty risk assessment of Ba1(cr)
- Short-term counterparty risk assessment of Not Prime(cr)
..Outlook Actions:
....Outlook, Stable
The following rating of BNDES Participacoes S.A. -
BNDESPAR was affirmed:
Long-term local issuer rating of Ba2, stable outlook
..Outlook Actions:
....Outlook, Stable
Moody's National Scale Credit Ratings (NSRs) are intended as relative
measures of creditworthiness among debt issues and issuers within a country,
enabling market participants to better differentiate relative risks.
NSRs differ from Moody's global scale credit ratings in that they are
not globally comparable with the full universe of Moody's rated entities,
but only with NSRs for other rated debt issues and issuers within the
same country. NSRs are designated by a ".nn"
country modifier signifying the relevant country, as in ".za"
for South Africa. For further information on Moody's approach to
national scale credit ratings, please refer to Moody's Credit rating
Methodology published in May 2016 entitled "Mapping National Scale Ratings
from Global Scale Ratings". While NSRs have no inherent absolute
meaning in terms of default risk or expected loss, a historical
probability of default consistent with a given NSR can be inferred from
the GSR to which it maps back at that particular point in time.
For information on the historical default rates associated with different
global scale rating categories over different investment horizons,
please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1216309.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK endorsement
status and on the Moody's office that issued the credit rating is
available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Theresangela Araes
Vice President - Senior Analyst
Financial Institutions Group
JOURNALISTS: 0 800 891 2518
Client Service: 1 212 553 1653
Marc R. Pinto, CFA
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
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