Fitch Ratings has revised the Rating Outlook on the Local Currency Long-Term Issuer Default Rating (IDR) of Bradseg ParticipacOes S.A.'s (Bradseg) to Negative from Stable and affirmed the rating at 'BB+'.

The National Long-Term Rating of 'AAA(bra)' was also affirmed and the Outlook remains Stable. The rating actions on Bradseg follow the revision of the Outlook of its parent, Banco Bradesco, of which it is a core subsidiary.

Key Rating Drivers

Support-Driven Ratings: Bradseg's IDRs are aligned with the ratings of its parent, Bradesco. The Outlook for Bradseg's IDR mirrors Bradesco's, which is one notch above Brazil's sovereign ratings (BB/Stable). Fitch revised the Rating Outlook on Banco Bradesco S.A.'s (Bradesco) Long-Term Local and Foreign Currency Issuer Default Ratings (IDRs) to Negative from Stable and affirmed the IDRs at 'BB+'. The Negative Outlook on Bradesco's IDRs reflects greater deterioration of its asset quality and profitability than Fitch previously expected. The bank incurred a significant increase in payment delays on retail loans, mainly from unsecured loans in the low-income segment.

In applying Fitch's insurance criteria regarding the impact of ownership on Bradseg' ratings, Fitch considered how the ratings would theoretically be affected under Fitch's bank support criteria. Fitch's insurance criteria are principles-based regarding ownership, and the referenced bank criteria was used to help inform Fitch's judgment in applying those principles.

Core Subsidiary: Fitch views Bradseg as a 'core subsidiary' of Bradesco, and therefore its ratings are equalized with those of its parent. This is based on the strategic importance of Bradseg's insurance operations, which complement the main retail banking activities, common branding and high contribution of Bradseg to group profits. The insurance holding company has consistently contributed to the bank's consolidated earnings historically.

Robust Market Position: The rating also reflects the company's leading position, consistent performance and diversified revenue base. Bradseg had a leading position and overall market share of approximately 22.7% as of September 2023. The ratings also consider the company's strong distribution capacity, underpinned by the wide branch network of its parent, good performance and comfortable capitalization ratios.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Bradseg's IDR has limited upside potential, as it is equalized to that of Banco Bradesco, the ratings of which are constrained by its operating environment. Over the medium term, the ratings could benefit from stabilization and eventual improvement of Fitch's assessment of the operating environment for Brazilian banks;

For the national scale rating, this sensitivity is not applicable, given that the National LT rating of Bradseg was affirmed at 'AAA(bra)'.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Bradseg's ratings are linked to those of Banco Bradesco. Therefore, any negative change in the bank's ratings would affect Bradseg's ratings, as would a change in its willingness to provide support, which Fitch considers highly unlikely;

Bradseg's National Ratings are sensitive to changes in creditworthiness relative to other Brazilian issuers.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

Public Ratings with Credit Linkage to other ratings

Bradseg's rating are directly linked to the IDR of Banco Bradesco, the ultimate parent company.

RATING ACTIONS

Entity / Debt

Rating

Prior

Bradseg Participacoes S.A.

LC LT IDR

BB+

Affirmed

BB+

Natl LT

AAA(bra)

Affirmed

AAA(bra)

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VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

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