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Rating Action:

Moody's changes to stable outlook on Daycoval, BNDESPar, B3 S.A. and Itaúsa's ratings; affirms debt and issuer ratings

 The document has been translated in other languages

10 Apr 2018

Sao Paulo, April 10, 2018 -- Moody's America Latina (MAL) has today changed to stable, from negative, the outlook on the global scale local currency debt and/or issuer ratings assigned to Banco Daycoval S.A. (Daycoval), BNDES Participações S.A. - BNDESPAR, Itaúsa - Investimentos Itaú S.A. (Itaúsa) and B3 S.A. -- Brasil, Bolsa, Balcão (B3 S.A.). At the same time, MAL affirmed all the affected global scale ratings and corresponding national scale ratings. These actions follow the announcements by Moody's Investors Service (MIS) that it had changed the outlook on Brazil's Ba2 government bond rating ("Moody's changes outlook on Brazil's ratings to stable from negative; Ba2 ratings affirmed") and on certain ratings of the affected issuers or their affiliates to stable ("Moody's changes to stable outlook on multiple Brazilian banks and B3 S.A.; affirms ratings"), from negative, published on 9 and 10 April 2018, respectively.

For additional information, please refer to the related announcements: https://www.moodys.com/viewresearchdoc.aspx?docid=PR_380048 and https://www.moodys.com/viewresearchdoc.aspx?docid=PR_381908.

The following are the Brazilian entities covered in this press release:

- Banco Daycoval S.A.

- BNDES Participações S.A. - BNDESPAR

- Itaúsa - Investimentos Itaú S.A.

- B3 S.A. -- Brasil, Bolsa, Balcão

RATINGS RATIONALE

The rating actions were prompted by the change in outlook to stable, from negative, on Brazil's government bond rating, which reflects reduced downside risks to growth and uncertainty regarding the country's reform momentum and has relieved the sovereign constraint on the affected banks' ratings and/or assessments. In particular, the change in the sovereign outlook considers Brazil's higher-than-expected short- and medium-term growth prospects, backed by structural reforms, which will support fiscal consolidation efforts.

Banks exhibit strong credit interlinkages with their sovereign. Banks' exposure to sovereigns can be direct, via liquidity-related exposure to central banks and government bonds, and indirect, via lending book exposures to the real economy, which is itself correlated to the government's creditworthiness.

Moody's projects average GDP growth of 2.8% in 2018-19 and 2.5% in the following years in Brazil. The near-term outlook will be supported by a pick-up in credit growth backed by an accommodative monetary policy and solid prospects in the job market. Supported by improving investor confidence, these elements will underpin a broad-based recovery in domestic demand driven by both investment and consumption, which will benefit bank's earnings prospects and relieve pressure on asset quality that accumulated during the country's recession.

Over the medium term, Brazil's growth prospects will be supported by structural reforms approved by the Temer administration since 2016, including a labor reform that added flexibility to contract negotiations between employees and employers. In addition, several measures were adopted to improve the ease of doing business with a focus on reducing red tape and regulations, while the decision to phase out subsidized lending by BNDES will improve credit allocation and contribute to the development of domestic capital markets.

The banks' stable outlooks and ratings affirmations consider that their credit fundamentals remain sound despite the significant challenges they faced during Brazil's recession. Banks are well prepared to face a new credit cycle as economic growth gains traction and credit risk declines, supported by historically low inflation and interest rates. Following two years of contraction, credit is expected to grow between 3%- 5% in 2018, with credit demand supported by household deleveraging as corporate lending remains subdued. Banks have emerged from the recession with manageable asset risks, and non-performing loan ratio remained relatively stable over the 12 months through January 2018 at approximately 3.5%, while loan loss reserves are conservative at 6.5% of gross loans. Resumed loan growth, lower credit costs, and continued cost cutting will help offset margin compression as loan books begin to reprice at lower rates and competition increases, leading to a modest improvement in earnings. At the same time, contraction in public banks' lending has reduced pricing distortions.

In addition, having risen to an ample 14.5% of risk-weighted assets in 2017,the average regulatory capitalization ratio is more than adequate to support the projected gradual loan expansion over the coming quarters, as well as to accommodate the final phase-in of Basel III rules early in 2019, though the quality of capital is relatively weak compared to global banks because of high amounts of deferred tax assets. Finally, strong liquidity will limit banks' funding needs, while a largely domestic funding structure reduces their vulnerability to potential unexpected shocks coming from global markets.

WHAT COULD CHANGE THE RATING -- DOWN/UP

The ratings could face upward pressure if Brazil's government bond rating is upgraded in conjunction with continued improvement in the issuers' credit fundamentals and/or Brazil's macroeconomic environment. On the other hand, if Brazil's government bond rating again faces downward pressures, the affected ratings would be negatively pressured as well. The ratings would also face downward pressure if the issuers' fundamentals deteriorate unexpectedly.

The following ratings assigned to Banco Daycoval S.A. were affirmed:

Long-term global local-currency senior unsecured debt rating of Ba2; outlook changed to stable, from negative

Long-term global local-currency senior unsecured MTN rating of (P)Ba2

Long-term Brazilian national scale senior unsecured debt rating of Aa2.br

Long-term Brazilian national scale senior unsecured MTN rating of Aa2.br

The following ratings assigned to B3 S.A. -- Brasil, Bolsa, Balcão were affirmed:

Long term global local currency senior unsecured debt rating of Ba1; outlook changed to stable, from negative

Long term Brazilian national scale senior unsecured debt rating of Aaa.br

The following ratings assigned to BNDES Participações S.A. - BNDESPAR were affirmed:

Long-term global local-currency issuer rating of Ba2; outlook changed to stable, from negative

Long-term global local-currency senior unsecured debt rating of Ba2; outlook changed to stable, from negative

Long-term Brazilian national scale issuer rating of Aa1.br

Long-term Brazilian national scale senior unsecured debt rating of Aa1.br

Outlook changed to stable from negative

The following ratings assigned to Itaúsa - Investimentos Itaú S.A. were affirmed:

Long-term global local-currency issuer rating of Ba3; outlook changed to stable, from negative

Long-term Brazilian national scale issuer rating of A1.br

Outlook changed to stable from negative

The principal methodology used in rating Banco Daycoval S.A., BNDES Participações S.A. - BNDESPAR, and Itaúsa - Investimentos Itaú S.A. was Banks published in September 2017. The principal methodology used in rating B3 S.A. -- Brasil, Bolsa, Balcão was Securities Industry Service Providers published in September 2017. Please see the Rating Methodologies page on www.moodys.com.br 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_1113601.

REGULATORY DISCLOSURES

Information sources used to prepare the rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's information.

Information types used to prepare the rating are the following: financial data, operating data, asset portfolio data, historical performance data, public information, and Moody's information.

Sources of Public Information: Moody's considers public information from many third party sources as part of the rating process. These sources may include, but are not limited to, the list available in the link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_193459.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Please see the ratings disclosure page on www.moodys.com.br for general disclosure on potential conflicts of interests.

Moody's America Latina Ltda. may have provided Other Permissible Service(s) to the rated entity or its related third parties within the 12 months preceding the credit rating action. Please go to the report "Ancillary or Other Permissible Services Provided to Entities Rated by Moody's America Latina Ltda." in the link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_198873 for detailed information.

Entities rated by Moody's America Latina Ltda. and the rated entities' related parties may also receive products/services provided by parties related to Moody's America Latina Ltda. engaging in credit ratings activities within the 12 months preceding the credit rating action. Please go to the link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_198874 for a list of entities receiving products/services from these related entities and the products/services received.

The date of the last Credit Rating Action for Banco Daycoval S.A. was 21/3/2018

The date of the last Credit Rating Action for B3 S.A. -- Brasil, Bolsa, Balcão was 31/5/2017

The date of the last Credit Rating Action for Itaúsa - Investimentos Itaú S.A. was 31/5/2017

The date of the last Credit Rating Action for BNDES Participações S.A. - BNDESPAR was 31/5/2017

Moody's ratings are constantly monitored, unless designated as point-in-time ratings in the initial press release. All Moody's ratings are reviewed at least once during every 12-month period.

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.br.

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.

Please see ratings tab on the issuer/entity page on www.moodys.com.br for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com.br for further information.

Please see Moody's Rating Symbols and Definitions on the Ratings Definitions page on www.moodys.com.br for further information on the meaning of each rating category and the definition of default and recovery.

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

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com.br, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.

Please see www.moodys.com.br 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.br 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

M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
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

No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY'S (COLLECTIVELY, "PUBLICATIONS") MAY INCLUDE SUCH  CURRENT OPINIONS. MOODY'S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY'S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY'S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS ("ASSESSMENTS"), AND  OTHER OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES  ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY'S.

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Moody's Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody's Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody's Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and Moody's investors Service also maintain policies and procedures to address the independence of Moody's Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody's Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy."

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