Foreign currency ratings reviewed for upgrade, local currency ratings for downgrade
New York, July 07, 2009 -- Moody's Investors Service has placed on review for possible upgrade the
Ba2 long-term foreign-currency deposit ratings of Banco
do Brasil S.A. (BB) and its subsidiary Banco Nossa Caixa
S.A.(NC), as well as those of Caixa Econômica
Federal (CEF), and of Banco Nacional de Desenvolvimento Econômico
e Social S.A. (BNDES), following similar actions taken
on the sovereign ratings of the Brazil government. (For further
details on the government-related action, please refer to
Moody's press release on Brazil dated July 6, 2009 "Moody's
places Brazil's ratings on review for possible upgrade".)
The Not Prime short-term foreign currency deposit ratings are not
affected and remain unchanged. Moody's also placed on review
for possible upgrade the Baa3 foreign currency debt ratings assigned to
bonds issued by BB and BNDES.
At the same time, Moody's has placed on review for possible
downgrade the A1/ Prime-1 long- and short-term global
local currency deposit ratings of Banco do Brasil, Banco Nossa Caixa
and Caixa Econômica Federal, as well as the A1 local currency
issuer rating assigned to BNDES; these actions are being taken in
response to Moody's global reassessment of the systemic support
available to banks following the global financial crisis. Also
placed on review for possible downgrade are the A1 local currency issuer
and debt ratings assigned to BNDES Participações S.A.
- BNDESPAR.
Moody's explained that of the 37 banks it currently rates in Brazil,
only the four government-owned banks (BB, NC, CEF,
and BNDES) are likely to be affected by this reassessment of systemic
support because their deposit and issuer ratings benefit from several
notches of uplift. Moody's also noted that the review is
focused on bank ratings and, therefore, there is no current
or expected similar impact on ratings of Brazil's government-owned
non-financial companies.
The national scale deposit ratings of Aaa.br assigned to BB,
NC, CEF and BNDES have all been affirmed, with a stable outlook.
Also, the Aaa.br national scale issuer and debt ratings assigned
to BNDESPAR are not affected by this action and remain unchanged.
Separately, Moody's affirmed Banco do Brasil and Banco Nossa
Caixa's C bank financial strength ratings (BFSR, which maps
to a baseline credit assessment - BCA - of A3), but
changed the outlook on them to positive, from stable. Caixa
Econômica Federal's BFSR of D+ (BCA of Baa3) was also
affirmed with a stable outlook. (As a non deposit-taking
government related issuer, BNDES is not assigned a financial strength
rating). These specific actions follow Moody's initiative
of recalibrating banks' stand-alone ratings in light of heightened
emphasis on utilizing scenario analysis of banks' risk assets to
determine adequacy of capitalization under both Moody's expected
and adverse macroeconomic outlooks.
Review of Foreign Currency Debt and Deposit Ratings
The review for possible upgrade of the banks' foreign-currency
deposit and debt ratings is the direct result of the sovereign action
announced yesterday; Moody's will review for possible upgrade
the Ba2 country ceiling for foreign currency bank deposits and the Baa3
country ceiling for foreign currency bonds. Because BB and BNDES's
current debt ratings of Baa3 are constrained by the country ceiling for
foreign currency debt, the potential upgrade of the ceiling would
be expected to result in the upgrade of the banks' bond ratings.
Review of Local Currency Deposit and Debt Ratings
The review of the local-currency deposit and debt ratings of BB,
NC, CEF and BNDES follows Moody's global reassessment of probable
systemic support available to these bank ratings. The review will
determine the extent to which the level of systemic support that is currently
incorporated into these banks' local currency ratings -- which
ranges from two to seven notches of uplift -- should be
more closely aligned to the Brazilian government's local currency bond
rating.
Moody's believes that most governments are at least as likely,
if not more likely, to support their banking systems as they are
to service their own debt -- a view that has traditionally
led to bank ratings often benefiting from significant uplift because of
the probability of systemic support. However, the rating
agency has also recognized that the capacity of a country and its central
bank to support the nation's banks may converge with -- and
may even be increasingly constrained by -- the government's
own debt capacity when faced with situations of systemic stress.
This is particularly true when governments are faced with systemic crises
that could place indiscriminate pressure on the major banks in a system;
the current financial crisis has exposed this risk in many systems globally,
requiring Moody's to reassess the amount of uplift above the debt
ratings of governments that is appropriate in its evaluation of systemic
support of banks.
The details of this approach are outlined in Moody's recent Special Comment
entitled "Financial Crisis More Closely Aligns Bank Credit Risk and Government
Ratings in Non-Aaa Countries" (published in May 2009 and available
on www.moodys.com).
Moody's again explained that it currently rates 37 banks in Brazil,
but that only the four government-owned banks are likely to be
affected by this reassessment because their deposit ratings benefit from
several notches of uplift due to systemic support.
At present, the rating agency does not incorporate any probability
of systemic support to the deposit ratings of many of the medium and small
rated Brazilian banks. Large private banks, whose intrinsic
financial strengths are already at Brazil's A1 ceiling for bank
deposits, also do not benefit from systemic support on their deposit
ratings, while those subsidiaries of foreign banks primarily gain
uplift from parental support.
As part of its review, Moody's will analyze the specific circumstances
of Brazil to determine the appropriate level of systemic support for Brazilian
bank ratings, as well as the implications for the deposit ratings
of the above-mentioned banks. Factors that the agency will
consider in its assessment of systemic support include the banking industry's
size in relation to government resources, the level of stress in
the system, its foreign currency obligations relative to the government's
own foreign exchange resources, and any changes to the government's
political patterns and priorities.
In this regard, Moody's will also take into account the particular
factors being evaluated in the review for possible upgrade of the sovereign
ratings.
Amid the current global crisis, the rating agency emphasized that
the Brazilian authorities have acted forcefully to ensure the stability
of the banking system by employing safeguards that have been long-built
into their regulatory framework. Among the most relevant measures
are the use of sizable reserve requirements on deposits and the application
of part of the central bank's foreign currency reserves to support
banks' liquidity and funding needs (with no fiscal consequences).
Moody's also notes that the government-owned banks have played
an important role in supporting the economy and in the orderly performance
of the banking system, commanding significant deposit inflows in
this period -- a dynamic that in part explains the positive
outlook on Banco do Brasil's stand-alone BFSR rating (detailed
below).
In Moody's view, the level of credit stress in the Brazilian
banking system has been muted, although signs of asset quality deterioration
and pressures on profits are evident and could increase further,
were economic conditions to deteriorate.
Affirmation of Bank Financial Strength Ratings
In its reassessment of the banks' financial strength ratings and
their outlooks, Moody's employs scenario analysis to determine
the potential for expected losses on loan and investment portfolios;
this method evaluates both anticipated and highly stressed scenarios to
estimate the resulting impact on bank capitalization. In light
of the weakened global economic environment, such an approach places
greater emphasis on banks' capital adequacy and future earnings
prospects.
The refinement in Moody's approach to banks' financial strength
ratings is discussed in the Special Comment "Calibrating Bank Ratings
in the Context of the Global Financial Crisis", published
in February 2009.
In affirming Banco do Brasil and Banco Nossa Caixa's C bank financial
strength ratings with a positive outlook, Moody's acknowledges
the favorable trends for the banks' franchise and competitive positions,
as well as for their financial metrics, which continue to converge
with those of higher rated banks. The positive outlook also reflects
Banco do Brasil's dominant deposit franchise and liquidity,
which have been further strengthened in the current market turmoil.
Moody's also pointed out that the banks' capitalization is
positioned to withstand potentially higher credit losses over the near
term at its current rating level, despite the challenges of a robust
recent growth in lending. This assessment is predicated on the
banks' earnings-generation capacity and diversity,
as well as on adequate provisioning policies.
In affirming Caixa Econômica Federal 's D+ (D plus) bank
financial strength rating with a stable outlook, Moody's explained
that the bank's capitalization could well withstand potentially
higher credit losses in the near term at its current rating level.
The rating agency also noted that CEF's high growth rates over the
past quarters could translate into an improved earnings stream,
although such growth could strain its operating structure and pressure
its financial fundamentals, as well.
Previous Ratings Actions and Principal Methodologies
The principal methodologies used in rating these banks were "Bank Financial
Strength Ratings: Global Methodology" and "Incorporation of Joint
Default Analysis into Moody's Bank Ratings: A Refined Methodology",
which can be found on www.moodys.com in the Credit Policy
& Methodologies directory in the Ratings Methodologies sub-directory.
Other methodologies and factors that may have been considered in the process
of rating the banks can also be found in the Credit Policy & Methodologies
directory.
The last rating action on Banco do Brasil was on January 15, 2009
when all of its ratings were affirmed following the announcement of the
partnership with Banco Votorantim S.A.
The last rating action on Banco Nossa Caixa was on March 24, 2009;
at that time, Moody's upgraded its BFSR and global local currency
deposit ratings following regulatory approval for its acquisition by Banco
do Brasil. NC's foreign currency deposit and national scale
ratings were also affirmed.
The last rating action on Caixa Econômica Federal (CEF) was on August
23, 2007 when the long-term foreign currency deposit rating
was upgraded to Ba2, following the upgrade of Brazil's foreign
currency deposit ceiling.
The last rating action on Banco Nacional de Desenvolvimento Econômico
e Social (BNDES) was on August 23, 2007 when the long-term
foreign currency deposit rating was upgraded to Ba2, following the
upgrade of Brazil's foreign currency deposit ceiling.
The last rating action on BNDESPAR was on July 7, 2008, when
Moody's rated its local currency debentures.
The detailed ratings and actions are listed below:
Banco do Brasil S.A.
- Bank Financial Strength rating of C: outlook changed to
positive from stable
- Global long and short-term local currency (GLC) deposit
ratings of A1/ Prime -1: placed on review for possible downgrade
- Long-term foreign currency deposit rating of Ba2:
placed on review for possible upgrade
- Long-term foreign currency debt rating of Baa3:
placed on review for possible upgrade
- Long and short-term national scale deposit ratings of
Aaa.br/ Br-1: affirmed with stable outlook
- Short-term foreign currency deposit rating of Not Prime:
affirmed
Banco do Brasil, Cayman Branch:
- Foreign currency senior and junior subordinated debt ratings
of Baa3: placed on review for possible upgrade
Banco Nossa Caixa S.A.
- Bank Financial Strength rating of C: outlook changed to
positive from stable
- Global long and short-term local currency (GLC) deposit
ratings of A1/ Prime -1: placed on review for possible downgrade
- Long-term foreign currency deposit rating of Ba2 -
placed on review for possible upgrade
- Long and short-term national scale deposit rating of Aaa.br/
BR-1: affirmed with stable outlook
- Short-term foreign currency deposit rating of Not Prime:
affirmed
Caixa Econômica Federal
- Bank financial strength rating of D+: affirmed with
stable outlook
- Global long and short-term local currency (GLC) deposit
ratings of A1/ Prime 1: placed on review for possible downgrade
- Long-term foreign currency deposit rating of Ba2:
placed on review for possible upgrade
- Long and short-term national scale deposit rating of Aaa.br/
BR-1: affirmed with stable outlook
- Short-term foreign currency deposit rating of Not Prime:
affirmed
Banco Nacional de Desenvolvimento Econômico e Social S.A.
- Global long and short-term local currency (GLC) issuer
ratings of A1/ Prime 1: placed on review for possible downgrade
- Long-term foreign currency deposit rating of Ba2:
placed on review for possible upgrade
- Long and short-term national scale deposit rating of Aaa.br/
BR-1: affirmed with stable outlook
- Short-term foreign currency deposit rating of Not Prime:
affirmed
BNDESPAR -- BNDES Participações S.A.:
- Global local currency issuer rating of A1: placed on review
for possible downgrade
- Global local currency debt rating of A1: placed on review
for possible downgrade
- National scale issuer rating of Aaa.br: affirmed
with stable outlook.
- National scale debt rating of Aaa.br: affirmed with
stable outlook
New York
M. Celina Vansetti
Senior Vice President
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Sao Paulo
Ceres Lisboa
Vice President - Senior Analyst
Financial Institutions Group
Moody's America Latina Ltda.
55-11-3043-7300
Moody's reviews Brazilian government-owned banks
