Fitch Affirms BRB's IDRs at 'BB-'; Downgrades VR to 'b+'
A full list of rating actions follows at the end of this release.
KEY RATING DRIVERS
IDRs, NATIONAL RATINGS AND SUPPORT RATINGS
BRB's IDRs and National Ratings are driven by support from its controlling shareholder, the Government of Distrito Federal (GDF).
The affirmation of BRB's ratings reflect that the current rating levels already take into account Fitch's internal assessment of the Government of Distrito Federal (GDF).
BRB is strategically important for GDF as it acts as the state's tax-collecting agent, carry out transfers to municipalities, and is responsible for the cash management of the state. In addition, BRB has relevant business with state public entities to which they provide services and grant credit to suppliers and public servants, via special payroll deductible loans.
The upgrade of the Support Rating to '3' from '4' reflects a smaller differentiation between Fitch's internal analysis of the parent and the support driven LT IDRs assigned to BRB, which is consistent with Fitch's assessment of support according to its criteria.
GDF holds 96.8% of BRB's voting shares. BRB's activities are concentrated in the Federal District (DF), and it operates with a network of 121 branches, which cover all of DF's administrative regions.
Fitch downgraded BRB's VR to 'b+' from 'bb-' due to the bank's weak performance in 2015 and 1Q16, affected by a sharp increase in credit costs, reflecting vulnerabilities of its asset quality. In addition to that, the bank's capitalization should also suffer from the weak internal capital generation.
BRB's VR reflects its regional importance and local franchise. The bank's profitability has fallen sharply as a result of the deterioration on the operating environment, the recovery of which should be slow and gradual. As such, profitability and asset quality remain under pressure as well as internal capital generation.
On a positive note, the bank counts on good funding access through its branch network and has maintained a good liquidity position.
IDRS, NATIONAL RATINGS AND SUPPORT RATINGS
Fitch carries out internal analysis of GDF and BRB's IDRs. National and Support Ratings are based on the expected support of the state and are therefore strongly influenced by this analysis. As such, any changes to GDF's financial strength that hampers its ability to provide support or any change in Fitch's view about GDF's propensity to provide support to BRB could lead to a change on the bank's ratings.
BRB's VR could be downgraded again if BRB's FCC ratio falls to less than 7% and if the bank's Operating ROAA remains below 0.5% for a prolonged period.
An upgrade of BRB's VR would be conditional to a sharp recovery on its profitability to levels of Operating ROAA superior to 0.8% and an improvement on FCC to levels above 10%.
Fitch has taken the following rating actions:
BRB - Banco de Brasilia S. A
--Long-Term Local and Foreign Currency IDRs affirmed at 'BB-(bra)'; Outlook Negative;
--Short-Term Foreign and Local Currency IDRs affirmed at 'B'
--Long-Term National Rating downgraded to 'A+(bra)' from 'AA-(bra)', Outlook revised to Stable from Negative;
--Short-Term National Rating downgraded to 'F1(bra)' from 'F1+(bra)';
--Support Rating upgraded to '3' from '4';
--Viability Rating downgraded to 'b+' from 'bb-' .