Fitch Affirms Banco do Brasil, Banco Votorantim and Caixa Economica Federal's IDRs

  Fitch Affirms Banco do Brasil, Banco Votorantim and Caixa Economica
  Federal's IDRs

Business Wire

NEW YORK & SAO PAULO & RIO DE JANEIRO -- July 12, 2013

Fitch Ratings has affirmed the long-term foreign and local currency Issuer
Defaults Ratings (IDRs), Support Ratings and National Ratings of Banco do
Brasil S.A. (BdB), Banco Votorantim S.A. (BV) and Caixa Economica Federal
(Caixa). Fitch also affirmed BdB's and BV's Viability Ratings (VR) at 'bb+'
and at 'bb-', respectively.

A full list of rating actions is provided at the end of this release.

The international ratings of BdB and Caixa, which are systemically important
banks in Brazil, are equalized and linked to Brazil's sovereign ratings,
reflecting the support that Fitch expects they would receive form federal
government if necessary.

BdB and Caixa are two of the largest government-owned retail banks and lenders
in Brazil. They have maintained their market share over the years, despite
fierce competition from large private retail banks. At the first quarter of
2013 (1Q'13), with assets of BRL1.179 billion and deposits of BRL469 billion,
BdB was the largest bank in the country in terms of assets and deposits (18%
and 27% market share, respectively, in 2012). In the same period, Caixa's
assets and deposits were BRL731 billion and BRL323 billion, ranking as the
fourth and second, respectively (12% and 18% market share, respectively, in
2012).

Both banks are present in a wide range of lending segments from commercial
lending to individuals, SMEs and corporates, to lending for infrastructure
projects. BdB is the largest lender in agricultural lending (62% market share)
and payroll deductible loans (30% market share), while Caixa is by far the
largest lender in mortgage lending (69% market share). They also manage the
collection and payment of benefits in Brazil.

BdB is 58.6% owned by the government and Caixa is fully government owned. They
both fulfill an important public policy role. Their loan books grew faster
than the private banks' average in the recent years. Average annual loan
growth was 20% and 42% for BdB and Caixa, respectively, between 2010 and 2012.
Such aggressive loan growth reflects the anti-cyclical role performed by both
banks in the recent years and will be tested in an environment of lower
interest rates and high credit costs. Fitch expects that such fast loan growth
will not undermine their current asset quality ratios in the short and medium
term, although the current environment of lower than average economic growth
may put some pressure to those ratios.

BdB and Caixa's asset quality indicators remained largely stable in 2012 and
1Q'13, and continue to be slightly better than large private banks' averages.
The banks benefit from relatively higher exposure to public sector employee
client base and payroll deductible loans. Past due loans over 90 days of both
entities are approximately 2% of gross loans and compare well with local and
international peers. Caixa's impaired loans, which include loans that are
performing but classified in the riskier end of the internal risk
classification of the bank, remain higher than BdB's (8.7% of gross loans
versus 5.8%, respectively, at 1Q'13) and are driven mainly by its commercial
loan book where impaired loans 13.6% versus the 6% of the mortgage lending
book.

Both BdB and Caixa have low Fitch Core Capital (FCC) ratios (BdB: 5.8% and
Caixa: 4.7%, at 1Q'13) compared to other banks in Brazil and around the world,
which is one of their main weakness. Fitch notes that current capitalization
strategy for both banks considers a significant use of hybrid instruments that
will aid their compliance with the newly regulatory capital rules (BIS III
compliant) and even result in higher than minimum regulatory capital ratios;
nevertheless, the overall result of such strategy will not improve their FCC,
which is Fitch's cornerstone capital measure. Despite their franchise,
adequate historic profitability, stable funding and good asset quality ratios,
Fitch believes improvements in capitalization ratios derived from paid in
capital would enhance the credit quality of both banks.

KEY RATING DRIVERS

BdB:

BdB's IDRs and national ratings are linked to the sovereign ratings of Brazil
and reflect the federal government control and its systemic importance. The
probability of the Brazilian government providing support to BdB is high,
which explains its Support Rating of '2' and its Support Rating Floor of
'BBB'. The federal government has influence over the strategies of the bank,
which is evidenced by BdB's role during the recent crisis, and in the
governmental economic policies promoting the agribusiness development, and,
more recently, in the widespread reduction in the domestic interest rates.

BdB's VR factors its strong franchise, wide branch network, diversified client
and earnings base, high liquidity and satisfactory performance through the
economic cycles, while its capitalization remains low compared to other banks
rated 'bbb-' or higher around the world. Even if a minor improvement is
expected in its FCC ratio due the profits from the Initial Public Offering of
BB Seguridade, a large portion of the capitalization plan of the bank to
comply with new regulatory capital rules in Brazil is based on the use of
hybrid instruments as part of their 'Principal Tier 1 Capital', which would be
neutral to Fitch's FCC ratio.

BV:

BV's IDRs and national ratings are based on the support that Fitch believes
the bank receives from BdB. Fitch considers BV to be strategically important
to BdB, since BV performs important complementary activities to BdB's
operations.

BV's VR is constrained by its recent weak performance, high leverage and
challenges to its asset quality metrics. Also, BV's VR considers its adequate
position within its niche market - the auto loans segment - and the benefits
provided by the ordinary support of its shareholders in terms of liquidity and
funding availability.

Caixa:

Caixa's ratings are linked to Brazil's sovereign ratings and reflect the high
probability of support, as evidenced by the capital injections by the National
Treasury funding loan growth over the years, full ownership by the federal
government, its systemic importance, and the crucial role it plays in the
implementation of government economic programs and extension of credit to
lower income population segments. Fitch considers Caixa a 'public-mission
bank', therefore does not assign a VR.

Caixa is one of the main agents financing and/or managing politically high
profile federal government development programs such as Programa de Aceleracao
do Crescimento (the Accelerated Growth Program focusing on large
infrastructure projects), Programa Minha Casa Minha Vida (a program for
mortgage lending), and Bolsa Familia (an assistance grant made to low-income
families). It also manages a number of large public funds and the collection
of federal lottery proceeds.

The National Treasury injected BRL12 billion of capital and BRL23 billion of
hybrid instruments and subordinate debt eligible as regulatory capital between
2010 and 2012. In June 2013, the National Treasury injected BRL8 billion as
'Principal Tier 1 Capital', and is expected to transfer further funds until
the end of the year. The regulatory capital ratio is likely to increase by
year-end, despite the expectation of the maintenance of high dividend payouts
(123% of net income in 2012) and loan growth target of 40% for year-end 2013.
Despite such capitalization strategy, Caixa's FCC remains at 4.7% as of March
2013 and it is expected to remain around this level, which, in Fitch's view,
is low compared to other similar entities and also considering its ambitious
growth target.

RATING SENSITIVITIES

BdB:

BdB's IDRs would be affected by potential changes in the sovereign ratings of
Brazil and/or in its shareholder?s willingness to provide support. Fitch does
not expect a change in the government's willingness to provide support over
the rating horizon.

BdB's VR would be negatively affected if the FCC ratio falls below 5.5%, asset
quality deteriorates to above its historic average on a sustained basis,
and/or profitability weakens beyond Fitch's expectations undermining its
capital base measured by FCC ratio. Also, positive rating changes to BdB's VR
would be dependent on a significant and sustained improvement of its FCC ratio
and the ability to preserve good asset quality ratios and profitability
levels.

BV:

Although unlikely in the short term, any change in BdB's ratings or in its
willingness or capacity to provide support could result in changes to BV's
IDRs and national ratings.

The VR could benefit from the reversal of its weak performance, expressed by
an ROA above 1%, and from the sustainable improvement in its performance and
credit quality metrics. The VR could be downgraded if there is further
deterioration in credit portfolio, reduction in capitalization, and weak
performance.

Caixa:

Caixa's IDRs would be affected by potential changes in the sovereign ratings
of Brazil and/or in its shareholder's willingness to provide support. Fitch
does not expect a change in its evaluation of the government's willingness to
provide support over the rating horizon.

Fitch has taken the following rating actions:

Banco do Brasil:

--Long-term foreign and local currency IDRs affirmed at 'BBB', Outlook Stable;

--Short-term foreign and local currency IDRs affirmed at 'F2';

--Viability Rating affirmed at 'bb+';

--Long-term national rating affirmed at 'AAA(bra)', Outlook Stable;

--Short-term national rating affirmed at 'F1+(bra)';

--Support Rating affirmed at '2';

--Support Rating Floor affirmed at 'BBB'.

Banco Votorantim:

--Long-term foreign and local currency IDRs affirmed at 'BBB-', Outlook
Stable;

--Short-term foreign and local currency IDRs affirmed at 'F3';

--Viability Rating affirmed at 'bb-';

--Long-term national rating affirmed at 'AA+(bra)', Outlook Stable;

--Short-term national rating affirmed at 'F1+(bra)';

--Support Rating affirmed at '2';

--BRL senior unsecured notes due May 2016, foreign currency rating affirmed at
'BBB-'.

BV Leasing Arrendamento Mercantil S.A.

--1st and 2nd debentures issuances, national long-term rating affirmed at
'AA(bra)'.

Caixa Economica Federal:

--Long-term foreign and local currency IDRs affirmed at 'BBB', Outlook Stable;

--Short-term foreign and local currency IDR affirmed 'F2';

--Long-term national rating affirmed at 'AAA(bra)', Outlook Stable;

--Short-term national rating affirmed at 'F1+(bra)';

--Support Rating affirmed at '2';

--Support Rating Floor affirmed at 'BBB';

--Senior unsecured USD notes due 2017 and 2022, long-term foreign currency
rating affirmed at 'BBB'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Assessing and Rating Bank Subordinated and Hybrid Securities' (Dec. 15,
2012);

--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);

--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012);

--'National Ratings Criteria' (Jan. 19, 2011).

Applicable Criteria and Related Research:

Assessing and Rating Bank Subordinated and Hybrid Securities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695542

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

Rating FI Subsidiaries and Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209

National Ratings Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=796254

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PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
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ON THE FITCH WEBSITE.

Contact:

Fitch Ratings
Primary Analyst (BdB, BV and BV Leasing)
Paulo Fugulin, +55 11 4504-2206
Associate Director
Fitch Rating Brasil Ltda.
Alameda Santos 700
Sao Paulo, Brazil
or
Primary Analyst (Caixa)
Esin Celasun, +55 21 4503-2626
Associate Director
Fitch Ratings Brasil Ltda.
Praca XV de Novembro, 20 - 401 B,
Rio de Janeiro, RJ, Brasil
or
Secondary Analyst (BdB)
Maria Rita Goncalves, +55 21 4503-2626
Senior Director
or
Secondary Analyst (BV and BV Leasing)
Pedro Gomes, +55 21 4503-2604
Director
or
Secondary Analyst (Caixa)
Jean Lopes, +55 21 4503-2614
Associate Director
or
Committee Chairperson
Franklin Santarelli, +1 212-908-0739
Managing Director
or
Media Relations:
Jaqueline Carvalho, +55 21 4503 2623, Rio de Janeiro
jaqueline.carvalho@fitchratings.com
or
Elizabeth Fogerty, +1 212-908-0526, New York
elizabeth.fogerty@fitchratings.com
 
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