Fitch Assigns 'BB/AA(bra)' Ratings to BRDE

RIO DE JANEIRO & SAO PAULO--(BUSINESS WIRE)-- Fitch Ratings has assigned the following ratings to Brazil's Banco Regional de Desenvolvimento do Extremo Sul (BRDE):

--Foreign Currency Long-Term Issuer Default Rating (IDR) 'BB', Outlook Negative;

--Local Currency Long-Term IDR 'BB', Outlook Negative;

--Short-Term Foreign Currency IDR 'B';

--Short-Term Local Currency IDR 'B';

--Long-Term National Rating 'AA(bra)', Outlook Stable;

--Short-Term National Rating 'F1+(bra)';

--Support Rating '3'.

KEY RATING DRIVERS

BRDE's ratings reflect its importance and strategic role as a Development Bank in the southern region of Brazil. BRDE is highly integrated and operates in line with the economic policies of its controlling States: Parana (EPR), Santa Catarina (ESC), and Rio Grande do Sul (ERS). The bank works mainly as a private-sector financing bank, always with a focus on sectors of economic and social development of the region. Fitch does not assign a Viability Rating to BRDE, as the agency believes it is not possible to form a truly stand-alone opinion on its creditworthiness, given its role as a regional development bank.

Fitch has public ratings for EPR ('BB'/ Outlook Negative /'AA(bra)'/ Outlook Stable) and ESC ('BB', Outlook Negative/ /'AA(bra)'/ Outlook Stable), as well as an internal opinion on the creditworthiness of ERS. All these strongly influence BRDE's ratings. Fitch believes that the probability of BRDE receiving shareholder's support is not constrained by the relatively weaker financial profile of ERS. This is demonstrated by the capital injections received from ESC and EPR over the last two years and ERS's large capital reserves in the bank. Also, the fact that the bank does not distribute dividends and reinvests all of its profits, as per its bylaws, reinforces our view that a capital withdrawal would be very unlikely.

Therefore, BRDE's ratings are equalized with the ratings of EPR and ESC, the states that account for two thirds of the bank's capital and a slightly larger portion of its total loans. The bank is relatively small because of the financial flexibility of its controlling states, which reduces the cost of potential support and increases their willingness to support the bank. BRDE's IDR follows the Negative Outlook of EPR and ESC.

As a regional development Bank, BRDE's operations mainly cover the territory of its controlling states and bordering states. BRDE is one of the main onlenders of Banco Nacional de Desenvolvimento Economico e Social's (BNDES) disbursements in the southern region. The bank also operates with official funds from Financiadora de Estudos e Projeto (Finep), Fundo Constitucional do Centro-Oeste (FCO) and Caixa Economica Federal. BRDE plans to diversify its funding through loan lines with international development institutions.

Fitch believes that, in the same manner as other public banks, BRDE's strategies and goals can be influenced by the different economical environments and political guidelines of their controlling states, in addition to possible disagreements among those. On the other hand, the fact that BRDE has three controlling shareholders also minimizes potential impacts, since its operations and decisions are verified by those three state governments.

In 2015 and first quarter 2015 (1Q16), BRDE's asset quality indicators have remained stable, comparing favorably to peers with similar profiles. As of March 2016, the bank's impaired loans (those classified in the central bank's D-H range) were 4.2% (3.5% in 2015, 4.0% in 2014 and 3.7% in 2013). Credit concentration was moderate, with the 20 largest clients representing 24% of the total credit in December 2015.

BRDE has a history of adequate capitalization ratios. The bank received new capital injections of BRL400 million in 2014, which contributed to improving its metrics. Due to its development profile, the interest rates charged by BRDE on its credit operations are below other financial institutions. Despite that, the bank has been maintaining good profitability ratios (ROAA 1.4% over the past three years), above that of their peers.

BRDE was created in 1961, following an agreement between the bank and governors of ERS, EPR and ESC to create a council - Codesul (Conselho de Desenvolvimento e Integracao do Sul) - to promote the integration and the development of the country's southern region, for which purpose BRDE has been used as a financial instrument ever since. In 1Q16, BRDE reported BRL15.2 billion of assets, BRL 2.4 billion of equity, and BRL 59.9 million of net income.

RATING SENSITIVITIES

Changes in Support: BRDE's ratings may be downgraded if Fitch observes changes in control of the bank, or dividend pay-out policies, or upon potential changes in the capacity or willingness of its controlling states (mainly ESC and EPR) to provide support to BRDE, if necessary. Upside rating momentum would only arise from positive rating actions in its controlling shareholders.

Additional information available at 'www.fitchratings.com' or at 'www.fitchratings.com.br'.

Applicable Criteria

Global Bank Rating Criteria (pub. 15 Jul 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=884135

National Scale Ratings Criteria (pub. 30 Oct 2013)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1009444

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1009444

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160725006196/en/

Fitch Ratings
Primary analyst
Jean Lopes
Director
+55-21-4503-2617
Fitch Ratings Brasil Ltda.
Praca XV de Novembro, 20 - Room 401 B - Downtown
Rio de Janeiro - RJ - CEP: 20010-010
or
Secondary analyst
Raphael Nascimento
Senior analyst
+55-11-3957-3664
or
Committee Chairperson
Alejandro Garcia, CFA
Managing Director
+1-212-908-9137
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
[email protected]

Source: Fitch Ratings

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