SAO PAULO--(BUSINESS WIRE)--Fitch Ratings has today affirmed the ratings of Banco do Nordeste do Brasil S.A. (BNB) as follows:
--Foreign and local currency long-term Issuer Default Ratings (IDRs) at 'BBB'; Outlook Stable;
--Foreign and local currency short-term IDRs at 'F2';
--Support Rating at '2';
--Support Rating Floor of 'BBB';
--National long-term rating at 'AAA(bra)'; Outlook Stable;
--National short-term rating at 'F1+ (bra)'.
KEY RATING DRIVERS - IDRS AND NATIONAL RATINGS
The ratings of BNB are derived from the support of its main shareholder, the National Treasury, an arm of the Federative Republic of Brazil. This support is reflected by capital and funding as the role BNB plays in the development of Brazil's Northeast region.
BNB's earnings benefit from its role as sole manager of the Constitutional Fund of the Northeast (FNE). BNB has been relatively insulated from the margin compression affecting other large Brazilian banks, since it already offered subsidized interest rates. Nevertheless, provisioning costs accounted for 73.2% of operating profit in 2012. The bank expects to post similar net income in 2013 compared to 2012.
BNB's asset quality has been historically weak due to the bank's role of bearing risk related to development loans, which presents higher delinquency and expected loss. The bank's Fitch Core Capital (FCC) ratio of 8.2% is considered somewhat thin as equity has been diminished by an aggressive dividend pay-out and loan growth.
The National Treasury has committed to inject BRL4 billion (USD2.03 billion) in Tier 1 capital by end-2014 to finance future growth. The form of the capital injection is not presently known. Since BNB is near its regulatory limit of Tier II capital, Fitch believes that cash injections would be preferable.
RATING SENSITIVITIES - IDRS AND NATIONAL RATINGS
Any changes in BNB ownership or in the propensity of its shareholder to provide support could result in changes in the bank's ratings.
Created by federal law in 1952, BNB is controlled by the Federal Government with the mission to develop Brazil's northeast region. BNB is the main agent of Fundo Constitucional do Nordeste, a development fund with assets of BRL42.8 billion (USD21.7 billion) at fiscal year-end 2012.
Additional information is available on www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);
--'National Ratings Criteria' (Jan. 19, 2011).
Applicable Criteria and Related Research
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
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