Fitch Affirms Banco do Estado do Rio Grande do Sul's Ratings; Outlook
Revised to Positive
SAO PAULO -- December 20, 2013
Fitch Ratings has revised the Rating Outlook to Positive from Stable on the
Long-Term Issuer Default Ratings (IDR) and National Long-Term Rating of Banco
do Estado do Rio Grande do Sul S.A. (Banrisul). Fitch also affirmed Banrisul's
ratings as follows:
--Long-term Foreign and Local currency IDRs at 'BB +'; Outlook to Positive
--Short-term Local and Foreign Currency IDR at 'B';
--Viability Rating at 'bb+';
--Support rating at '4';
--Support Rating Floor at 'B';
--National Long Term rating at 'AA-(bra)'; Positive Outlook;
--National Short-Term rating at 'F1+(bra)';
--First Issuance of Senior Unsecured Letras Financeiras at 'AA-(bra)';
--Tier II Subordinated notes due Feb 2022 at 'BB-'.
KEY RATING DRIVERS
The Positive Outlook reflects Banrisul's consistent performance compared to
local and international peers in addition to Fitch's expectation that the bank
will preserve both asset quality and profitability metrics going forward. The
ratings factor in the bank's regional importance, its stable retail funding
base, resilient profitability and liquidity ratios, compatible with its retail
profile. On the other hand, the ratings are balanced by the bank's modest
national presence and the fiercer competition with larger Brazilian banks.
Fitch does not assign ratings to the state of Rio Grande do Sul (RS) and,
therefore, does not credit this support to the bank. The Support Rating '4'
and the Support Rating Floor 'B' reflect the agency's opinion that in a stress
scenario, a limited support from the Federal Government would be possible
given Banrisul's relative importance to the state. The Support Rating also
reflects the absence of any explicit guarantee from the Federal Government to
Pursuant to this strategy, Banrisul also engages on secured personal loans,
benefited by the recent acquisition of Promotora de Vendas Bem Vindo that
allows the origination of payroll deductible loans and financial products
nationwide. In September 2013, about 27% of total loans were originated for
clients domiciled outside of RS relatively stable in relation to 2012. Bem
Vindo should also offer other products such as insurance and credit cards.
Following market practices, Banrisul created a company to consolidate its
credit card activities in October, 2013. This decision is still pending some
approvals from the State's House of Representatives and exemplifies the
political influences Banrisul is subjected when implementing its commercial
strategies. This can constitute a competitive challenge when compared to
As per 3Q13, the bank's nonperforming loans (NPL) above 90 days and its
reserve coverage ratio were 3.7% and 165%, respectively, showing a slight
worsening trend(2.8% and 239% in 2012). Nevertheless, the agency expects that
the weaker economic performance expected would not translate into further
credit deterioration and margin compression in 2014. The reduction on
provision reserves along 2013 was mainly driven by the revision of the bank's
provisioning policies. Despite this measure, Fitch notes that Banrisul's
reserves still remains above minimum required by the local regulator and
compare well with regional peers.
Benefited by resources from the subordinated debt issued in 2012 (total
outstanding at BRL1.8 bn in September 2013), liquid investments covered a high
50% of the bank's total short-term obligations in September 2013. In addition,
Fitch Core Capital reached a satisfactory 14.6%, compatible with its retail
Banrisul is the seventh largest bank in the financial system by total deposits
and the largest in the state, provides payroll services to various entities in
RS and holds a historically stable deposit base equivalent to almost 35% of
the region's total deposits. With 461 branches and controlled by the state of
RS, Banrisul is present in 85% of the municipalities. As a retail bank, it
focuses primarily on individuals and middle market companies.
Letras Financeiras: Banrisul's senior unsecured domestic issuances rank equal
with its other senior unsecured debt, and its ratings are aligned to the bank
long-term national ratings.
USD Tier 2 Subordinated Notes: Banrisul's 'BB-' rated subordinated notes due
January 2022 are rated two notches below the VR 'bb+' of the bank (one notch
for loss severity characteristics and subordinated status and one notch for
its moderate risk of failure in performance). These notes will rank pari passu
to the bank's subordinated debt and have a cumulative coupon deferral
mechanism that can be exercised if the minimum regulatory capital is breached.
Banrisul VR and IDRs
The IDRs and National Scale Ratings are on Positive Outlook. The ability of
the bank to preserve their current capital levels and profitability jointly
with its good asset quality ratios (with 90 days NPLs around 3% with more than
150% loan loss reserve coverage and contained loan charge offs) would result
in an upgrade. Conversely, an unexpected deterioration of its asset quality
and profitability may result in the Outlook to come back to stable.
Negative Factors: Banrisul may be downgraded if asset quality ratios show a
significant deterioration (90 days past due loan ratio above 5% and weaker
loan loss coverage) and/or its Fitch Capital Ratio (FCC) comes below 12% in a
Any change of Banrisul's ratings may lead to a review of ratings assigned to
Additional information is available at 'www.fitchratings.com' or
Applicable Criteria and Related Research:
--'Global Financial Institutions Ratings Criteria' (Aug. 15, 2012);
--'National Ratings Criteria' (Oct. 30, 2013);
--'Assessing and Rating Bank Subordinated and Hybrid Securities' (Dec. 5,
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
National Scale Ratings Criteria
Assessing and Rating Bank Subordinated and Hybrid Securities
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