SAO PAULO & RIO DE JANEIRO--(BUSINESS WIRE)--Fitch Ratings' Outlook for the Brazilian banking system in 2012 is Stable according to its report: '2012 Outlook: Brazilian Banks - Well Positioned, but Credit Slowdown Expected.'
The Stable Outlook is based on the financial strength of the majority of participants, especially regarding capitalization and liquidity, combined with a favorable, moderate economic environment, despite the recent slowdown. The ratings reflect that fact that the large private retail banks, where the bulk of the assets and deposits are concentrated, are financially solid.
The outlook also considers the various challenges to the banking system, both from within Brazil and externally. Fitch expects the majority of the banks' ratings to remain relatively unchanged during 2012. While there may be some downgrades to certain smaller bank ratings, these are expected to be idiosyncratic in nature, due to certain weaknesses such as the asset quality or funding pressures.
One of the Brazilian banking system's strengths continues to be its local and diversified funding base. Most banks, especially the large retail banks, will continue to be favored by their stable deposit and investor funding bases. Depending on the degree of diversification, certain smaller wholesale banks may be subject to funding pressures from local changes in banking regulation or external events. Lessons learned since the 2008 crisis have led to improvements in funding and liquidity for most banks.
The quality of the Brazilian banking system's assets should remain satisfactory in 2012, although Fitch expects greater pressure from higher credit costs during the course of the year. Non-performing loans have reached higher levels during recent months as a result of the strong systemic growth seen in 2010 and the subsequent the cooling of demand in 2011. Despite these pressures, Fitch believes that banks will continue to be satisfactorily managed through adequate provisioning and pricing.
The past and current actions of the banking authorities evidence the government's commitment to a stable banking environment and economy. Also, the work done by the Fundo Garantidor de Credito (FGC-similar to the U.S.A.'s FDIC) has contributed to this stability. The banking system remains well capitalized, and the high reserve requirements and continuous monitoring by the Central Bank provide flexibility for the regulators to effectively deal with potential liquidity risks. Recent actions, such as the relaxation during November and December 2011 of certain macroprudential regulations and reduced taxes on consumer goods, combined with a third reduction in the benchmark SELIC interest rates, should continue to fuel economic growth, thus benefiting the banking system.
A Positive Outlook is not likely in the short term as it is tied to an improvement in the funding structure, which is dependent on a resumption of the capital markets. However, a significant increase in nonperforming ratios and funding pressures affecting liquidity could lead to a Negative Outlook.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'EM Banking System Datawatch: Credit Slowdown Expected, But Most Growth-Markets Remain Sound' (Nov. 16, 2011);
--'Brazil: Well-Positioned Against Higher Global Financial Volatility' (Oct. 27, 2011);
--'Mid-sized Brazilian Banks: Adequate Performance for a Challenging Business Model' (April 28,2011);
--'Brazilian Banks: Semiannual Review and Outlook' (March 09, 2011);
--'Global Financial Institutions Rating Criteria' (Aug.16, 2011)
Applicable Criteria and Related Research: 2012 Outlook: Brazilian Banks (Well Positioned, but Credit Slowdown Expected)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=658977
EM Banking System Datawatch
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656618
Brazil: Well-Positioned Against Higher Global Financial Volatility
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=654044
Midsized Brazilian Banks: Adequate Performance for a Challenging Business Model -- Amended
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=602006
Brazilian Banks: Semiannual Review and Outlook
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=503386
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=649171
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