RIO DE JANEIRO--(BUSINESS WIRE)--Fitch Ratings has assigned international scale ratings to Banco Banco Regional de Desenvolvimento do Extremo Sul (BRDE) as follows.
--Long-term Foreign Currency Issuer Default Rating (IDR) 'BB-';
--Long-term Local Currency IDR 'BB-';
--Short-term Foreign Currency IDR 'B';
--Short-term Local Currency IDR 'B';
--Individual Rating 'D'
--Support Rating Floor 'no floor'.
At the same time, Fitch has affirmed BRDE's existing ratings as follows:
--National Long-term Rating at 'A-(bra)';
--National Short-term Rating at 'F2(bra)';
--Support Rating at '5'.
The Rating Outlook on the long-term IDRs and National Rating is Stable.
BRDE's IDRs and National Ratings are driven by its Individual Rating, which reflects its importance as a development bank in Brazil's southern region, accounting for some 15% of the disbursements of the Banco Nacional de Desenvolvimento Economico e Social (BNDES) - the Brazilian national development bank - in the region, as well as its adequate liquidity and leveraging ratios. It also considers its low diversification of funding sources, high credit concentration and, as with other government banks, potential problems of political influence, given that it is controlled by the states of Rio Grande do Sul (RS), Santa Catarina (SC) and Parana (PR).
Improvement in BRDE's performance, together with greater diversification of funding, while maintaining adequate asset quality, would benefit its ratings. On the other hand, they could be negatively affected by a strong deterioration in credit quality or corporate ownership changes.
Credit, in part, is focused on agricultural or agro-industrial financing (about 50% at 1Q11), strongly influenced by climatic factors. These risks, however, are mitigated by federal government support for the sector through specific programs for securitization, extension of maturities, concession of bonuses and/or partial debt equalization, which end up significantly benefiting its asset quality ratios. Restructurings and refinancing of agricultural programs represented some 22% of the total portfolio at 1Q11, the bank's historical level. At 1Q11, BRDE's portfolio was distributed among the controlling states as follows: 28% in RS; 30% in SC; and 42% in PR.
BRDE finances its activities with low cost official transfers (basically BNDES) that match maturities and rates with assets. It has sought alternatives to expand its funding through new sources, although according to Fitch its funding will continue to be concentrated on government transfers. Historically, the bank has maintained high capitalization levels and good capital quality, comprised entirely of Tier 1, but declining since 2008, due to the lower profitability.
BRDE's results were negatively affected in 2009 and 2010 by the increase in loan loss reserves and some extraordinary tax-related expenses, reducing profitability below the historical average (about 10%). Fitch believes that profitability will return to historical levels during 2011, as occurred in the first quarter, provided there are no new extraordinary expenses and deterioration in credit quality.
BRDE is a government development bank, being one of the main development agents in the Southern Region. It was created in 1961 by the states of RS, SC and PR.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'National Ratings Criteria' (Jan. 19, 2011).
--'Short-Term Ratings Criteria for Corporate Finance' (Nov. 2,2010);
--'Global Financial Institutions Rating Criteria' (Aug. 16, 2010).
Applicable Criteria and Related Research:
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Short-Term Ratings Criteria for Corporate Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=568726
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685
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