New York, October 18, 2017 -- Moody's Investors Service ("Moody's") has today assigned a (P)Ba2 debt
rating to the USD 20 billion senior unsecured EMTN Program of Banco do
Brasil S.A. (BB), acting through its Grand Cayman
branch. Moody's also assigned a long-term foreign
currency senior unsecured debt rating of Ba2 to the proposed senior notes
takedown in the amount of around USD 750 million, denominated and
settled in USD, and due in January 2025. The outlook on the
senior unsecured debt rating is negative.
The notes will be senior unsecured obligations, and will rank pari
passu in right of payment with all of BB's existing and future senior
unsecured and unsubordinated liabilities.
The following ratings were assigned:
(P)Ba2 rating to the USD 20 billion EMTN Program
BACKED (P)Ba2 rating to the USD 20 billion EMTN Program
Ba2 long-term foreign currency senior unsecured debt rating
RATINGS RATIONALE
The rating reflects BB's strong funding and moderate profitability,
notwithstanding a decline in recent years. However, the rating
is constrained by the bank's adjusted capital levels, which
remains relatively modest by global standards despite a significant improvement
since 2015, as well as Brazil's still challenging operating
environment, which has led to an increase in asset risk in recent
years.
BB has managed to limit the deterioration of its loan book by limiting
exposures to riskier borrowers and segments. As a result,
non-performing loans have remained relatively stable since June
2016 at around 3.7%-4% of gross loans and
credit costs have started to fall in the first two quarters of 2017 after
peaking at 4.8% of loans in the 4Q16. At the same
time, loan loss reserves have continued to climb, reaching
a substantial 156% of problem loans as of June 2017.
The reduction in credit costs has supported a modest rebound in profitability
in the first two quarters of 2017 to an annualized 0.8%
of tangible assets. Earnings generation has also been supported
by ongoing efforts to improve efficiency and by the bank's targeted
lending to higher margin -- but higher risk - segments.
The bank's tangible common equity to adjusted risk weighted assets,
Moody's preferred capitalization metric, has risen to 9.1%
from just 5.7% as of September 2015 due to a slowdown in
loan growth and an increased focus on segments that consume less capital,
even if they are higher risk in Moody's view. Nevertheless,
this remains modest by both regional and global standards.
BB has a low reliance on market funds given its substantial base of core
deposit collected through its nationwide branch network and its access
to stable funding from federal funds and judicial deposits. As
a result, market funds are equal to just 14% of tangible
assets.
As BB's rating is constrained by Brazil's Ba2 sovereign rating,
the bank's negative outlook is in line with the negative outlook
on the sovereign.
WHAT COULD CHANGE THE RATING UP OR DOWN
BB's rating will likely be downgraded if Brazil's sovereign rating is
lowered. In line with the negative outlook, the rating is
does not face upward pressure at this time. However, the
outlook could be stabilized if and when the sovereign outlook returns
to stable.
The last rating action on Banco do Brasil S.A. (Cayman)
was on 31 May 2017.
Banco do Brasil S.A, is headquartered in Brasilia,
Brasil, and reported USD436.3 billion (BRL1,445 billion)
in assets, as of June 2017.
The principal methodology used in these ratings was Banks published in
September 2017. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
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.
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.
Alcir Freitas
VP - Senior Credit Officer
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 Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653