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Rating Action:

Moody's changes to negative outlook on 19 Brazilian bank ratings and BM&FBovespa; affirms ratings

 The document has been translated in other languages

31 May 2017

Action follows the change of the outlook on Brazil's Ba2 sovereign rating to negative

New York, May 31, 2017 -- Moody's Investors Service has today changed the outlooks to negative, from stable, of certain ratings of 19 Brazilian banks and their affiliates and the Brazilian stock and futures exchange BM&FBovespa S.A.. In addition, Moody's affirmed all of the affected issuers' ratings and assessments. These actions follow the change in outlook to negative, from stable, on Brazil's Ba2 government bond rating, on 26 May 2017. For additional information, please refer to the related announcement: https://www.moodys.com/research/Moodys-changes-outlook-on-Brazils-Ba2-issuer-rating-to-negative--PR_367210

Specifically, Moody's revised the outlooks on the issuer, local currency deposit, and/or foreign currency senior unsecured debt ratings of 15 domestically-owned banks that are at the same level as Brazil's sovereign rating, as well as those of four foreign-owned banks and BM&FBovespa that are above the sovereign rating.

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_195743 for the List of Affected Credit Ratings. This list is an integral part of this press release and identifies each affected issuer.

RATINGS RATIONALE

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_195743 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:

Principal Methodologies

The rating actions were prompted by the change in outlook to negative, from stable, on Brazil's sovereign bond rating, owing to the rising threat to the economic recovery and to the country's medium-term economic strength resulting from the increase in uncertainty regarding reform momentum following recent political events. Any slowdown in Brazil's tepid economic recovery, which was expected to gain traction in the second half of the year, will prolong the pressure on borrowers' repayment capacity and could lead to increasing asset risks for Brazil's banks, just as these risks looked to have peaked.

In turn, the pace of loan loss recoveries will slow as rising delinquencies require banks to make additional provisions, which put pressure on profits that were expected to start improving thanks to resumed loan growth and declining funding costs. Moreover, prospects for further reductions in funding costs could be hampered if a confidence-related shock to the exchange rate were to feed into higher inflation, limiting the Central Bank's ability to deliver further rate cuts.

Consequently, Moody's changed the outlooks on 17 entities' local currency deposit ratings, 3 local currency issuer ratings, and 9 foreign currency senior unsecured debt ratings. At the same time, Moody's affirmed all ratings whose outlooks were revised, as well as the ratings and baseline credit assessments (BCAs) of 20 issuers.

The affirmations consider that notwithstanding the recent increase in downside risk, the affected bank's financial profiles deteriorated much less than might have been expected over the past several years and that their credit fundamentals have actually begun to stabilize over the past three months. Since December 2016, the system's non-performing loan ratio (NPLs) and reserve coverage have remained broadly stable at 3.8% and 6.8% of gross loans, respectively, and collateralization remains adequate. Moreover, banks continue to demonstrate a conservative risk appetite, with lending activities contracting by 2.2% in the 12 month period ended in April 2017 notwithstanding a modest recovery in new loan origination in the household segment. Nevertheless, banks continue to post stable earnings, aided by resilient fee-based income in the period and stable capitalization. Banks' liquidity remains ample, and exposure to international funding sources is low, reducing the system's vulnerability to an eventual retraction of foreign institutional investors in times of increased political uncertainties in Brazil.

WHAT COULD CHANGE THE RATING -- DOWN/UP

The affected ratings could face downward pressure if Brazil's government bond rating is downgraded and its country ceilings lowered. Downgrade pressure could also depend upon a deterioration in issuers' credit fundamentals that could arise from delay in economic recovery or a return to a negative macro environment. While there is no upward ratings pressure at the present time given the negative outlook, the outlooks could be stabilized if and when Brazil's sovereign outlook stabilizes.

ENTITIES AFFECTED

1. Banco ABC Brasil S.A.

2. Banco Alfa de Investimento S.A.

3. Banco BBM S.A.

4. Banco Bradesco S.A. and Banco Bradesco S.A., Grand Cayman Branch

5. Banco Cooperativo Sicredi S.A.

6. Banco Daycoval S.A.

7. Banco do Brasil S.A. and Banco Do Brasil S.A. (Cayman)

8. Banco do Estado de Sergipe S.A.

9. Banco do Nordeste do Brasil S.A.

10. Banco Industrial do Brasil S.A.

11. BANCO NAC. DESENV. ECONOMICO E SOCIAL -- BNDES

12. Banco PSA Finance Brasil S.A.

13. Banco Safra S.A. and Banco Safra S.A. (Cayman Branch)

14. Banco Santander (Brasil) S.A. and Banco Santander (Brasil) S.A. - Cayman Branch

15. Banco Sofisa S.A.

16. Banco Votorantim S.A. and Banco Votorantim S.A. (Nassau Branch)

17. BM&FBovespa S.A.

18. Caixa Economica Federal (CAIXA)

19. Itau Unibanco Holding S.A. and Itau Unibanco Holding S.A. (Cayman Islands)

20. Itau Unibanco S.A. and Itau Unibanco S.A. (Cayman Islands)

METHODOLOGIES

The principal methodology used in rating Banco ABC Brasil S.A.; Banco Alfa de Investimento S.A.; Banco BBM S.A.; Banco Bradesco S.A. and Banco Bradesco S.A. (Cayman Branch); Banco Cooperativo Sicredi S.A.; Banco Daycoval S.A.; Banco do Brasil S.A. and Banco Do Brasil S.A. (Cayman); Banco do Estado de Sergipe S.A.; Banco do Nordeste do Brasil S.A.; Banco Industrial do Brasil S.A.; Banco Nac. Desenv. Economico e Social -- BNDES; Banco PSA Finance Brasil S.A.; Banco Safra S.A. and Banco Safra S.A. (Cayman Branch); Banco Santander (Brasil) S.A. and Banco Santander (Brasil) S.A. (Cayman Branch); Banco Sofisa S.A.; Banco Votorantim S.A. and Banco Votorantim S.A. (Nassau Branch); Caixa Economica Federal (CAIXA); Itau Unibanco Holding S.A. and Itau Unibanco Holding S.A. (Cayman Islands); Itau Unibanco S.A. and Itau Unibanco S.A. (Cayman Islands) was Banks published in January 2016.

The principal methodology used in rating BM&FBovespa S.A. was Securities Industry Service Providers published in February 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

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_1060333.

REGULATORY DISCLOSURES

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_195743 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:

• Lead Analyst

• Releasing Office

• Person Approving the Credit Rating

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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: 800 891 2518
Client Service: 1 212 553 1653

Celina Vansetti-Hutchins
MD - Banking
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.
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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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