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Rating Action:

Moody's affirms Banco Safra's Ba2 bank deposit and senior unsecured ratings; outlook remains stable

25 May 2021

New York, May 25, 2021 -- Moody's Investors Service ("Moody's") has today affirmed all ratings and assessments assigned to Banco Safra S.A. (Safra), including the bank's long and short-term global scale local and foreign currency bank deposit ratings of Ba2 and Not Prime, respectively. The rating agency also affirmed Safra's (P)Ba2 foreign currency senior unsecured MTN rating as well as its counterparty risk ratings, for local and foreign currency, of Ba1, and the Aa1.br and BR-1 long and short-term Brazilian national scale bank deposit ratings. Safra's baseline credit assessment (BCA) of ba2 and the counterparty risk assessments of Ba1(cr) and Not Prime(cr), for long and short-term, were also affirmed. The rating outlook remains stable.

The following ratings and assessments assigned to Banco Safra S.A. were affirmed:

..Baseline credit assessment of ba2

..Adjusted baseline credit assessment of ba2

..Long-term global scale local currency bank deposit rating of Ba2, outlook stable

..Short-term global scale local currency bank deposit rating of Not Prime

..Long-term Brazilian national scale bank deposit rating at Aa1.br

..Short-term Brazilian national scale bank deposit rating at BR-1

..Long-term global scale foreign currency bank deposit rating of Ba2, outlook stable

..Short-term global scale foreign currency bank deposit rating of Not Prime

..Long-term counterparty risk assessment of Ba1(cr)

..Short-term counterparty risk assessment of Not Prime(cr)

..Long-term Brazilian national scale counterparty risk rating at Aaa.br

..Short-term Brazilian national scale counterparty risk rating at BR-1

..Long-term global scale local and foreign currency counterparty risk ratings of Ba1

..Short-term global scale local and foreign currency counterparty risk ratings of Not Prime

..Long-term global scale foreign currency senior unsecured MTN rating of (P)Ba2

..Short-term global scale foreign currency senior unsecured MTN rating of (P)Not Prime

..Outlook: stable

The following ratings and assessments assigned to Banco Safra S.A. (Cayman Branch) were affirmed:

..Long-term counterparty risk assessment of Ba1(cr)

..Short-term counterparty risk assessment of Not Prime(cr)

..Long-term global scale local and foreign currency counterparty risk ratings of Ba1

..Short-term global scale local and foreign currency counterparty risk ratings of Not Prime

..Long-term global scale foreign currency senior unsecured MTN rating of (P)Ba2

..Long-term global scale foreign currency senior unsecured debt rating of Ba2, stable outlook

..Outlook: stable

RATINGS RATIONALE

The affirmation of Safra's ba2 BCA reflects the bank's ability to maintain a sound solvency profile on the back of its stable business performance amid a challenging operating environment in 2020. The bank's earnings benefit from a diversified and well-established commercial banking franchise , with focus on corporate banking and collateralized lending to smaller companies and individuals. Solid relationships with customers and disciplined risk guidelines have historically contributed to strong recurring earnings generation, low cost of risk and superior asset quality compared to similarly rated banks in Brazil. The bank maintained a low delinquency level compared to domestic peers, with a 90-day non-performing loan (NPL) ratio of 1% as of March 2021, covered by high loan loss reserves equivalent to three times NPLs, as calculated by Moody's.

However, we expect asset risks to rise in the coming quarters as Safra continues to expand into retail lending, primarily providing short-term loans to small businesses, a complementary business to its card acquiring platform Safrapay, which will increase earnings diversification and loan granularity overtime. In March 2021, this new collateralized portfolio accounted for less than 7% of the bank's loan book, while its traditional portfolio consisted of of loans to large corporates ( 58.7% of total loans), medium size companies (11.8%) and individuals (22.6%).

Banco Safra conservatively manages its liquidity, maintaining high cash balances that accounted for 57.1% of total deposits as of March 2021. The bank's large share of institutional funding is mitigated by long-standing customer relationships which have historically held up well through economic cycles. In March 2021, customer deposits increased 58.1% year-over year, indicating a strong and loyal customer base of corporates and qualified individual investors.

In March 2021, Safra's capitalization remained modest at 6.3% measured by tangible common equity to adjusted risk weighted assets. While this ratio is comparable to that of many of Safra's Brazilian peers, historically, the bank's business strategy has been supported by frequent dividend reinvestment and conservative distribution policy, which helps to mitigate the lower capital metrics compared to both regional and global standards. On a regulatory basis, however, Safra reported an adequate core capital ratio at 9.4%, above the regulatory minimum requirement of 6.75% for 2021.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Safra's ba2 BCA and Ba2 deposit rating have limited upward pressure at this moment because they are already at the same level of Brazil's Ba2 government bond rating. However, the bank's BCA could be lowered and its deposit ratings downgraded if Safra's asset quality deteriorates substantially as it increases its presence in riskier credit platforms to enhance business diversification, resulting in negative effects to profitability and capitalization via credit losses. Negative rating pressure would also arise if the outlook on Brazil's sovereign bond rating changes to negative, from stable.

RATING METHOLDOGY

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.

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.

Banco Safra S.A. is headquartered in São Paulo, and had total assets of BRL248.1 billion billion and shareholders' equity of BRL13,950 million as of 31 March 2021.

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.

Ceres Lisboa
Senior Vice President
Financial Institutions Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
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

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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