S&P downgrades several Brazil banks following sovereign downgrade

By E. Janene Geiss

Philadelphia, Feb. 18 – Standard & Poor's said it lowered the global scale credit ratings on several Brazilian financial services companies, along with more than two dozen national scale ratings following the downgrade of Brazil’s sovereign ratings.

Several more companies in Brazil also were placed on CreditWatch negative as S&P said it evaluates the potential negative impact of the sovereign downgrade on the creditworthiness of the financial system.

On Feb. 17, S&P downgraded the long-term foreign-currency of the Federative Republic of Brazil to BB from BB+, along with its long-term local-currency to BB from BBB-.

The following financial services companies were downgraded: Caixa Economica Federal SA; Banco Nacional de Desenvolvimento Economico e Social SA; Banco Safra SA; Banco Bradesco SA; Banco Citibank SA; Itau Unibanco Holding SA; Itau Unibanco SA; Banco Santander (Brasil) SA; Banco do Nordeste do Brasil SA; Banco do Brasil SA; and Banco ABC Brasil SA.

The global scale ratings of the following banks also were downgraded and placed on CreditWatch with negative implications: Banco BTG Pactual SA; Banco Votorantim SA; Banrisul – Banco do Estado do Rio Grande do Sul SA; Banco de Desenvolvimento do Estado de Minas Gerais SA; HSBC Bank Brasil SA; and Banco Daycoval SA.

The national scale ratings on the following companies were downgraded: Caixa Economica Federal; Banco Nacional de Desenvolvimento Economico; BNDESPar - BNDES Participacoes SA; Banco Safra; Banco Bradesco; Bradesco Capitalizacao SA; Banco Citibank; •Itau Unibanco Holding; Itau Unibanco; Banco BTG Pactual; Banco Toyota do Brasil SA; Banco BNP Paribas Brasil SA; Banco Volkswagen SA; Banco de Tokyo Mitsubishi UFJ SA; Banco Morgan Stanley SA; Banco Santander (Brasil); Banco Bonsucesso Consignado SA; Banco do Nordeste do Brasil; Ativos SA Securitizadora de Creditos Financeiros; Banco de Desenvolvimento do Estado de Minas Gerais; Banco Votorantim; Votorantim Financas SA; BV Leasing Arrendamento Mercantil SA; Banco ABC Brasil SA; Banrisul – Banco do Estado do Rio Grande do Sul; Banco Daycoval; and Banco do Estado do Para SA.

The following financial services companies were placed on CreditWatch negative: Votorantim Financas; BV Leasing Arrendamento Mercantil; Banco Indusval; Banco Intermedium SA; Banco Mercantil do Brasil SA; BRB – Banco de Brasilia SA; Banco Pine SA; Parana Banco SA; Caruana SA – Sociedade de Credito Financiamento e Investimento; and Banco do Estado do Para.

The following banks were placed on CreditWatch developing: Banco Original SA; and Banco Original do Agronegocio SA.

Brazil's credit profile has weakened further since September 2015 when the agency said it last lowered the ratings.

Political and economic challenges faced by Brazil remain considerable, S&P said.

A prolonged adjustment process with a slower correction in fiscal policy now is expected, along with another year of steep economic contraction, the agency said.

Financial services companies are rarely rated higher than the sovereign ratings because during times of sovereign stress, the sovereign's regulatory and supervisory powers may restrict the flexibility of a bank, S&P said.

Banks also are affected by many of the same economic factors that cause sovereign stress, the agency added.

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