OREANDA-NEWS. Fitch Ratings has affirmed the National Ratings of Banco Alfa de Investimento S.A. (Alfa) as follows:

--Long-term National Rating at 'AA(bra)', Outlook Stable;
--Short-term National Rating at 'F1+(bra)'.

KEY RATING DRIVERS

Alfa's ratings reflect its conservative lending and risk management strategy, excellent asset quality, high liquidity, comfortable capital ratios and the adequate performance track record. The ratings also reflect its wholesale funding, which is appropriate to its business profile, and lower diversification of its activities in comparison with higher local banks.

Alfa has recorded adequate results over the years, including during periods of turbulence. Although profitability was below peer average, the bank has low funding costs, reduced risk exposure and low leverage. The decrease in profitability since 2013 was due to lower spreads due to the strong competition, which reduced in 2015 because of less aggressiveness actions by public banks. Fitch recognizes that pressures on the results of the banks due to rising credit costs have had a low impact on Alfa, as its rather conservative approach, always guided by prudence in lending.

The bank continues to have excellent credit quality and conservative provisioning that is better than the peer average. Non-performing loans above 90 days were only 0.5% of the portfolio in December 2014 (0.7% in 2013). After a strong expansion in 2012, credit portfolio decreased 6.5% in 2013 and remained stable in 2014. Vehicles financing operations and payroll deductible loans accounted for 52% of the portfolio in 2014 (44% in 2012), benefiting from the focus on high-income customers with lower risk profile. Wholesale operations from large companies also continue showing adequate risk, even with the highest concentration of borrowers. Credit exposure to sensitive names involved in the lava-jato scandal are not relevant, representing 0.4% of the loan portfolio and 29% of the net income in December 2014.

Alfa succeeded in lengthening the average term of its funding base and capture large volume of resources at attractive costs of large local banks through financial bills (LFs) issued since 2012, benefited from changes to compulsory deposits rules. This movement has also favored the management of mismatches between assets and liabilities and liquidity, and minimizes the high concentration by investor. The 20 largest investors accounted for 45% of total funding, which is common for wholesale banks.

Alfa capital indicators are comfortable and historically higher than its peer average. There is no subordinated debt, and intangible assets are irrelevant. Fitch believes this ensures high loss absorption capacity and a cushion for continuous operating expansion.

RATING SENSITIVITIES
Positive Rating Action: Consistent improvements in funding diversification and a more robust performance (operating profit/average total assets above 1.5%) could positively affect the ratings.

Negative Rating Action: Alfa's ratings could be negatively affected if there were a substantial weakening of its asset quality and performance, which is unlikely. A decrease in Fitch Core Capital/risk-weighted assets to less than 13%, along with the deterioration of its operating revenue/average assets ratio to less than 1%, could lead to a negative rating action.

Originating in 1925, Alfa and the financial company of the group are listed on BM&FBovespa since 1977. It is controlled by Aloysio Faria in 81.52% of the voting capital and 63.3% of the total shares and the bank is part of an integrated financial group, whose institutions operate with a focus on financing large companies, vehicles, payroll loans, private banking, investment banking and asset management. The management of the group's activities is centralized and shares the same control systems and auditing. The investment bank remains the leading institution of the Financial Conglomerate Alfa and accounts for most of the assets and equity.