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

SAO PAULO -- July 3, 2014

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), and the National Ratings of BV Leasing Arrendamento Mercantil S.A's
(BV Leasing) debentures. 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. This
reflects Fitch's view that probability of government support to these two
banks, in case of need, is high. This explains their Support Ratings of '2'
and Support Rating Floors of 'BBB'.

BdB and Caixa are the two largest government-owned retail banks in Brazil.
Their strategies are highly linked to the government's economic and social
policies. BdB is 58.6% owned by the government and Caixa is fully government
owned. BdB has a relatively more commercial scope than Caixa, but both banks
fulfill an important policy role and increasingly compete for public funds.
BdB is the largest lender for agribusiness (68.5% market share in 1Q'14) and
payroll deductible loans (27.1% market share), while Caixa is the largest
lender in mortgage lending (67.6% market share).

In addition, they are both significant players in commercial loans (to
individuals, SMEs and corporates) and are expanding their infrastructure loan
portfolios. They are also financial agents for a number of public
institutions, such as the social security system, and manage various public
programs and funds.

In the first quarter of 2014, with assets of BRL1.370 billion and deposits of
BRL455 billion, BdB was the largest bank in the country in terms of assets and
deposits (20% and 26% market share, respectively, in March 2014). In the same
period, Caixa's assets and deposits were BRL910 billion and BRL371 billion,
ranking as the fourth and second, respectively (14% and 21% market share,
respectively, in March 2014).

Loan growth at both banks was well above the sector average in the recent
years, and was mainly induced by the anti-cyclical measures of the government.
Between 2011 and 2013, average annual loan growth was 20% and 41% for BdB and
Caixa, respectively, while the system average - excluding BdB and Caixa - was
11%. Both banks project a decline in loan growth in 2014, but it remains
sizable considering the meager economic activity expectations for the year
(BdB to 14-18% and Caixa to 22-25%).

Fitch believes that such fast loan growth, particularly in the case of Caixa,
might be masking a possible asset quality deterioration of the more seasoned
part of their respective loan portfolios. It may also have a negative impact
on their asset quality ratios going forward, given the continuation of modest
economic growth and inflationary pressures, as well as higher interest rates.

Both banks' asset quality indicators remained adequate in 2013 and 1Q'14, and
continue to be slightly better than the sector average. BdB's asset quality is
better than Caixa's and benefits from its large payroll deductible loan
portfolio (10% of total loans in March 2014), which has relatively low risk.
Improvements in new auto vintages and other factors, such as the significant
usage of insurance in the agribusiness segment, protection schemes in SMEs and
lower restructured loans have benefited BdB's credit quality metrics. In turn,
Caixa's indicators are supported by its secured loans portfolio (mortgages and
payroll deductible loans, which made up 65% of total in December 2013).

As of March 2014, BdB's nonperforming loans (NPLs, past due loans over 90
days) remained stable at approximately 2% of gross loans, while Caixa's NPLs
rose slightly to 2.6% from 2.3% in March 2013. In the same period, sector
NPL/gross loan ratio improved to 3% (3.6% in March 2013). The moderate
deterioration in Caixa's NPLs was mainly driven by the commercial loans to
individuals, while they remained stable at 1.9% in the mortgage book.

BdB and Caixa's capitalization ratios have historically been lower than the
average for large private banks. Recent rapid loan growth and high dividends
have also pressured both banks' capital ratios.

In the case of Caixa, the conversion of the Additional Tier 1 (AT1) securities
subscribed by the National Treasury to Common Equity Tier 1 (CET1) capital,
currently pending the Central Bank of Brazil's approval, will alleviate
potential pressures on its capitalization. It will also lead to a meaningful
improvement in the capital structure and the Fitch Core Capital (FCC) ratio,
as Fitch considers these securities as part of shareholder's equity and FCC.
Caixa's FCC ratio (FCC/risk weighted assets) should rise to approximately 11%
following the conversion (5.74% in March 2014). BdB's capitalization will
benefit more immediately by its recent market issue of AT1 securities, which
should maintain its Fitch Eligible Capital (FEC) ratio above 7% (7.09% in
March 2014), as Fitch assigns 50% equity credit to these securities.

BV is 50% owned by BdB and its participation will remain unchanged in the near
term, although its willingness to support the bank will remain strong if
necessary. BdB grants BV an interbank credit line of BRL 7 billion (never
used) and funding through recurring acquisitions of its credit portfolio.
There is no extraordinary capital injection need projected for the near term,
considering that BV should resume growth and profitability until 2015. Hybrids
instruments eligible as Tier 1 (T1) and Tier 2 (T2) capital have been studied
as part of its funding and capital plan as alternatives to provide the bank
with a cushion if necessary.

In recent years, BV has grown and expanded its scope of action, amplifying
revenues from a better product mix in the wholesale, wealth management and
consumer finance areas - in the latter, mainly in the auto loans segment. With
a strong relationship with multi brand dealers (new and used vehicles), BV is
one of the local leaders in car financing with around 17% market share as of
March 2014.

Fitch's projections for the state owned banks do not take into consideration a
potentially negative decision by the Brazilian Supreme Court regarding the
constitutionality of the monetary correction indices applied to certain
savings deposits in the past decades. An unfavorable decision would likely
pressure BdB and Caixa's capital and, possibly, their liquidity, depending on
the specifics of the ruling's outcome. Under this scenario, Fitch believes
that the government would provide the necessary support.

KEY RATING DRIVERS

BdB:
BdB's IDRs and National Ratings are linked to the sovereign ratings of Brazil,
reflecting the federal government control and influence over its strategies,
as well as its systemic importance. The federal government has influence over
the strategies of the bank, as evidenced by its role during the 2008 crisis,
in the governmental economic policies promoting the agribusiness development,
and in the widespread reduction in the domestic interest rates, as well as its
recent engagement in managing federal government's infrastructure programs.

BdB's VR considers 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 with VRs 'bb+/bbb-' and to local private peers. Some improvements are
expected in its capital base, which will preserve a minimum cushion during the
phase-in period of the new Basel III capital rules implemented in Brazil in
October 2013. Management has indicated their desire to run the bank with a
buffer on top of those requirements, although, in Fitch's opinion based on its
own capital adequacy calculations, such improvement may be modest.

The ratings of BdB's senior unsecured notes correspond to its Long-Term IDR.

BV:
BV's IDRs, Support Rating and National ratings are based on the support that
Fitch believes that the bank receives from BdB. Fitch considers that BV is
strategically important to BdB, since BV performs important complementary
activities to BdB's operations and strategies outside its network of agencies,
especially in the consumer finance business line (auto and payroll deductible
loans).

BV's VR reflects its adequate market position within its niche markets and the
benefits provided by the ordinary support of its shareholders in terms of
liquidity and funding. The VR also incorporates BV's still weak profitability
which was affected by asset quality issues between 2011 and 2013. Its capital
base is considered sufficient given its low profitability, and has been
enhanced by its shareholders. The recent improvements in asset quality and
ongoing adjustments to operating costs have been positive for its performance.
The capital ratios benefited from the reduction in the pace of expansion (FCC:
8.8%, T1: 9.5% and total regulatory capital: 14.5%, as of 1Q'14) and compares
well with banks at the same rating category.

The rating of BV's senior unsecured notes due May 2016 corresponds to its
long-term IDR.

The rating of BV Leasing's subordinated issuances, which are notched down by
one from the supported long-term National Rating of BV, reflect the loss
severity of the instrument due to its subordination to senior creditors in
case of liquidation of the entity. Fitch considers that support to those
issuances will be available from its parent BV. Hence, the current notching
incorporates only the loss severity in case of liquidation.

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
affordable 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.

Caixa's capital base is sustained by the National Treasury, which subscribed
all of its CET1 and AT1 securities as of March 2014. Caixa's T2 securities are
subscribed by the Workers' Severity and Indemnity Fund (Fundo de Garantia do
Tempo de Servico, FGTS). These will be phased out gradually (20% per year
starting five years prior to the maturity of each contract) and may be
replaced by Basel III-compliant T2 securities mainly provided by FGTS. Caixa
could also tap the international markets for hybrid debt issuances.

RATING SENSITIVITIES

BdB:
BdB's IDRs would be affected by potential changes in the sovereign ratings of
Brazil and/or in its shareholders' 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 affected negatively if asset quality deteriorates or
profitability weakens, undermining its capital base measured by a FEC ratio
lower than 6.5-7% in a sustained manner. Positive BdB VR action depends on a
sustained improvement of that ratio and 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 to BV, could result in changes in
BV's IDRs and National Ratings and the rating of its senior notes.

A consistent recovery of its profitability on a sustained basis and aligned
with peer averages, the maintenance of the adequate capital structure and
moderate risk appetite could be positive for BV's VR. The VR could be
downgraded if there is further deterioration in credit portfolio, performance
that lead to a reduction in capitalization.

The national long-term rating of the 1st and 2nd debenture issuances of BV
Leasing could be reviewed in the case of changes in BV's rating.

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';
--Senior unsecured CLF and EUR notes due 2018 and 2019, long-term foreign
currency rating 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';
--Senior unsecured BRL notes due May 2016, long-term 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, 2018, 2019 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' (Jan. 31,
2014);
--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);
--'National Ratings Criteria' (Oct. 30, 2013).

Applicable Criteria and Related Research:
Assessing and Rating Bank Subordinated and Hybrid Securities Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732137
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397
National Scale Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082

Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=837909
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Contact:

Fitch Ratings
Primary Analyst (BdB)
Paulo Fugulin
Director
+55 11 4504-2206
Fitch Rating Brasil Ltda.
Alameda Santos 700
Sao Paulo, Brazil
or
Primary Analyst (BV and BV Leasing) and Secondary Analyst (BdB and Caixa)
Maria Rita Goncalves
Senior Director
+55 21 4503-2621
Fitch Ratings Brasil Ltda.
Praca XV de Novembro, 20 - 401 B,
Rio de Janeiro, RJ, Brasil
or
Primary Analyst (Caixa)
Esin Celasun
Director
+55 21 4503-2626
Fitch Ratings Brasil Ltda.
Praca XV de Novembro, 20 - 401 B,
Rio de Janeiro, RJ, Brasil
or
Secondary Analyst (BV and BV Leasing)
Claudio Gallina
Director
+55 21 4503-2216
or
Committee Chairperson
Franklin Santarelli
Managing Director
+1-212-908-0739
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com
 
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