Fitch Affirms BNDES' Ratings; Outlook Stable
Fitch Ratings today affirmed all the ratings assigned to Banco Nacional de Desenvolvimento Economico e Social (BNDES). A full list of ratings follows at the end of this release.
The affirmation of the Issuer Default Ratings (IDRs) at 'BBB', which are equal to Brazil's sovereign ratings, and the national ratings of BNDES, reflects the federal government's control, high probability of support, and the key role it plays as Brazil's main development bank in implementing government policies aimed at national economic development and employment generation. The Stable Outlook for the IDRs reflects that of the sovereign rating. Fitch did not assign a Viability Rating because of the bank's development bank status.
BNDES is a development bank with ample access to government resources, part of which is guaranteed by the constitution. Its importance has grown since the economic crisis of 2008 and 2009, when the bank was used as a key instrument in the execution of the anti-cyclical policies of the government.
BNDES played an active role in the implementation of stimulus measures of the government in 2012 by reducing lending interest rates, and increasing tenors and maximum participation limits in various stages. The changes were implemented across a range of products with a special focus on the industry and infrastructure sectors. Total disbursements reached BRL156 billion in 2012 (BRL140 billion in 2011). Fitch Ratings does not expect these anti-cyclical initiatives to undermine asset quality ratios in the short term.
As of 3Q12, total net loans reached BRL457 billion (BRL429 billion at YE11), composed of direct (52%) and indirect operations (48%). The latter represent lending to financial institutions for on-lending. The proportion of the 10 largest borrowers to total loans remained high at 39.4% at 1H12 (38.7% at YE11). Fitch does not have access to individual credit risks and was unable to assess the quality of the portfolio or the adequacy of its provisions, but reported asset quality metrics are sound.
BNDES reported a slight decline in net income for the first six months of 2012, with its return on average assets (ROAA) falling to 0.88% from 1.54% and 2.14% in 2011 and 2010, respectively. This was due to the relatively lower investment income and slightly higher impairment charges. The persistence of this trend, as a result of slower than expected economic recovery, is a risk for the performance indicators, given the limited upside potential for net interest income. This is mitigated by BNDES's favourable track record for net charge-offs and asset quality ratios.
The National Treasury (Tesouro Nacional) remains the largest provider of funds to BNDES and transferred BRL55 billion in 2012. The Fundo de Amparo ao Trabalhador (FAT), the unemployment insurance fund, remains the second largest source of funding. At 1H12, funding from the Treasury and FAT corresponded to 57% and 26% of total liabilities respectively.
BNDES's Fitch core capital ratio decreased to 10.98% as at 1H12 (12.66% at YE11). This is mainly explained by the decrease in the revaluation reserves for the fair value of its equity portfolio, of BRL73 billion, classified as 'available for sale'. Capital measures tend to be volatile since revaluation reserves make up 20% of Fitch core capital.
Changes in Brazil's sovereign ratings or in the propensity and willingness of the government to provide support would directly affect BNDES' ratings, although this is currently an unlikely scenario.
Fitch has affirmed the following ratings on BNDES:
--Foreign and local currency long-term IDRs at 'BBB'; Outlook Stable;
--Foreign and local currency short-term IDRs at 'F2';
--Support rating at '2';
--Support rating floor at 'BBB';
--National long-term rating at 'AAA(bra)'; Outlook Stable;
--National short-term rating at 'F1+(bra)';
--Foreign currency long-term rating of the USD1 billion unsecured notes maturing in 2019 at 'BBB'.
Created in 1952 as a development agency, BNDES was converted into a bank in 1971. It is the main administrator of resources for the government's development efforts and an important supplier of development credit to the Brazilian economy.
Additional information available at 'www.fitchratings.com'. The ratings above were unsolicited and have been provided by Fitch as a service to investors.
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
National Ratings Criteria
Fitch Ratings Brasil Ltda.,
Praca XV de Novembro 20- 401 B, Rio de Janeiro, RJ, Brazil
Luiz Claudio Vieira
Elizabeth Fogerty, +1-212-908-0526 (New York)
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