NEW YORK & SAO PAULO & RIO DE JANEIRO--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings of Itau Unibanco Holding S.A. and some of its subsidiaries as detailed below. Also in the same rating action Fitch has changed its Support rating and upgraded the Support rating floor to reflect the enhanced support capacity of the Brazilian government after a sovereign upgrade and considering the systemic importance of the bank within the Brazilian financial system. A detailed list of the rating actions is provided below:
Itau Unibanco Holding S.A. (IUH)
--Foreign currency long-term Issuer Default Rating (IDR) affirmed at 'BBB+'; Stable Outlook;
--Foreign currency short-term IDR affirmed at 'F2';
--Local currency long-term IDR affirmed at 'A-'; Stable Outlook;
--Local currency short-term IDR affirmed at 'F1';
--Individual rating affirmed at 'B/C';
--Viability rating affirmed at 'a-'
--Support rating changed to '2' from '3';
--Support rating Floor upgraded to 'BBB-' from 'BB+';
--National long-term rating affirmed at 'AAA(bra)'; Stable Outlook;
--National short-term rating affirmed at 'F1+(bra)'.
--Market linked notes due November 2015 Foreign Currency long-term rating affirmed at 'BBB+emr'
--Subordinated notes due April 2020 Foreign Currency Long Term rating affirmed at 'BBB';
--Subordinated notes due January 2021 Foreign Currency Long Term rating affirmed at 'BBB'.
--Subordinated notes due December 2021 Foreign Currency Long Term rating affirmed at 'BBB'.
Banco Itau BBA S.A. (Itau BBA)
--Foreign currency long-term IDR affirmed at 'BBB+'; Stable Outlook;
--Foreign currency short-term IDR affirmed at 'F2';
--Local currency long-term IDR affirmed at 'A-'; Stable Outlook;
--Local currency short-term IDR affirmed at 'F1';
--Individual rating affirmed at 'B/C';
--Viability rating affirmed at 'a-'
--Support rating changed to '2' from '3';
--Support rating Floor upgraded to 'BBB-' from 'BB+';
--National long-term rating affirmed at 'AAA(bra)'; Stable Outlook;
--National short-term rating affirmed at 'F1+(bra)'.
Itau Unibanco S.A. (IU)
--Foreign currency long-term IDR affirmed at 'BBB+'; Stable Outlook;
--Foreign currency short-term IDR affirmed at 'F2';
--Local currency long-term IDR affirmed at 'A-'; Stable Outlook;
--Local currency short-term IDR affirmed at 'F1';
--Individual rating affirmed at 'B/C';
--Viability rating affirmed at 'a-'
--Support rating changed to '2' from '3';
--Support rating Floor upgraded to 'BBB-' from 'BB+';
--National long-term rating affirmed at 'AAA(bra)'; Stable Outlook;
--National short-term rating affirmed at 'F1+(bra)'.
--Senior notes due January 2012 Foreign Currency long-term rating affirmed at 'BBB+'
IUH's, Itau BBA's and IU's Long-term local currency IDRs of 'A-' and their long-term foreign currency IDR of 'BBB+' are above those of Brazil, while the foreign currency IDRs are constrained by the country ceiling.
The ratings reflect the bank's broad national franchise and position as the largest private bank in Brazil, where it is a market leader in many of its business lines. The ratings also consider its strong track record of consistent results even during difficult economic periods; its stable and diversified funding base; its adequate capital and solid liquidity.
IUH's recent profitability indicators remain satisfactory and its sources of revenue are well-diversified. First-half 2011 profitability continued to be favorable as evidenced by the return ratios (ROAA nearly 2.0%, ROAE 22.6%). For the first half of 2011 the bank reported a net profit of over BRL7 billion. First-half profitability was negatively affected by greater loan loss provisioning especially related to SME lending,(which currently represents about 25% of gross loans). Management recognized that in an effort to increase market penetration in this segment, underwriting standards ended up being too lenient as evidenced by an asset quality deterioration and decline in reserve coverage. To remedy this decline, significantly higher standards have been implemented such as the requirement of stronger collateral and greater pre-approval requirements, which are expected to slow growth in this segment. Some further deterioration is expected in this segment during the next quarter but stabilization is expected by the end of the year. In Fitch's view the aforementioned plan is sound and should yield positive results in the future, while the bank's strong earnings generation bode well to cope with the temporary increase of credit cost associated to this portfolio.
IUH's capital ratios are considered adequate and are in line with other similarly rated banks, especially considering the good track record of the banks in terms of profitability and limited loan losses. As such, the bank's Fitch core capital to weighted risks ratio improved to 12%, which is above the average of the three previous years, a trend that may change if asset expansion runs faster than expected, a scenario Fitch believes is not the most probable considering the recent trends in lending growth in Brazil and government efforts to curb lending.
Although IUH's IDRs are driven by its viability rating; its foreign currency long term IDR is constrained by the country ceiling. If the country ceiling is altered by Fitch, IUH's rating could be changed accordingly. IUH's ratings could be pressured by a sustained deterioration in its credit metrics such as a strong increase in delinquencies.
Controlled by the Egydio de Souza Aranha and Moreira Salles families, IUH is the largest private financial conglomerate in Brazil and Latin America.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'National Ratings Criteria', dated Jan. 19, 2011;
--'Short-Term Ratings Criteria for Corporate Finance'; dated Nov. 2, 2010;
--'Global Financial Institutions Rating Criteria', dated Aug. 16, 2010.
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685
Short-Term Ratings Criteria for Corporate Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=568726
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
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