Banco do Brasil SA, Banco Itau Unibanco SA and six other Brazilian lenders were downgraded by Moody’s Investors Service, which cited their exposure to government debt.
The standalone bank financial strength ratings or baseline credit assessments of the eight institutions was lowered by one to three levels, concluding reviews that Moody’s announced on Feb. 24 and March 15, the ratings company said in a statement. The changes are part of a global review of banks rated higher than their home countries, the company said.
Markets responded to Moody’s downgrade of 15 of the world’s largest banks last week by bidding up their stocks and bonds, after the prospect of cuts had weighed on them for four months. Moody’s said the changes to Brazilian banks’ ratings also reflect their dependence on the local economy and the influence of market sentiment on their funding base.
“There are little, if any, reasons to believe that these banks would be insulated from a government debt crisis,” Moody’s said in the statement. “We note their significant direct exposure to the Brazilian government securities, equivalent to 167 percent of tier 1 capital on average.”
Banco do Brasil, the country’s largest bank, had its standalone rating lowered three grades to baa2, the same as the sovereign rating. Its long-term deposit rating was cut one level to A3, the fourth-lowest investment grade.
Itau Unibanco, the second-largest lender, and Banco Bradesco SA, ranked No. 3, each had their standalone ratings cut by three levels to baa1, above the nation’s rating.
Banco Safra SA, Banco Santander Brasil and HSBC Bank Brasil were lowered to baa2. Banco Itau BBA SA was cut to baa1 and Banco Votorantim SA was reduced to one level below the sovereign’s Baa2 rating.