Fitch Ratings has affirmed
Fitch has revised the Rating Outlook on the National Rating to Stable from Negative. Fitch has also affirmed BRB's Short-Term IDR and National Rating at 'B' and 'F1(bra)', respectively.
The LT National Rating Outlook revision reflects that BRB's performance through the last few quarters has been better than expected, reducing the likelihood of the downside scenario contemplated when Fitch assigned the Negative Outlook in
Key Rating Drivers
BRB's Long-Term Local Currency and Foreign Currency IDRs are driven by its 'bb-' Viability Rating (VR). The bank's VR is highly influenced by its resilient company profile and also captures the limitations imposed by the Brazilian operating environment. BRB continues to maintain its strong franchise in the
The bank is also investing in its digital platform, with the objective of expanding its operations to other Brazilian states, which would strengthen and diversify its revenues sources. During the first half of 2021 the bank posted 1 million of new digital accounts, increasing its customer base by 175.2% in one year. In Fitch's view, although the digital strategy may initially pressure the institution's results due to the increase in expenses, in the long term it should expand the bank's franchise, bringing scale gains and cross-selling opportunities.
BRB's asset quality ratios are good, reflecting its focus on secured lending. At
Fitch's base case assessment assumes that asset quality will remain under pressure until at least 2022, but it should remain manageable aided by the bank's proactive risk management and improved economic prospects from 2H21 onwards. The small amount of renegotiated loans related to the pandemic at this stage (around 9.8% of total loans) signals that borrowers' repayment capacity remains adequate so far.
The bank maintained solid profitability, with operating profit at a high 5.0% of risk-weighted assets (RWAs) at
BRB's capitalization is adequate, and its common equity Tier 1 (CET1) stood at 12.7% at the end of 2Q21, slightly below its peers' average of 14.3%. This reduction is result of the strong growth of 29.1% of RWA YoY, due mainly to the high appetite on the market for payroll loans and mortgages. The bank is planning to carry out a follow-on in the upcoming months, which in Fitch's opinion will support its growth strategy.
The bank's funding and liquidity kept good and stable until 1H21. BRB funds its loan book through a combination of low cost retail deposits, deposits from related parties (mainly the Governo do
Support Rating
Fitch has affirmed BRB's Support Rating (SR) at '4'. The bank's SR reflects the limited probability of support from its majority shareholder, GDF. Fitch believes GDF has relatively limited capacity to support BRB should the need arise despite being very willing to do so. BRB is strategically important for GDF, as it is the local government's main financial agent and it has a meaningful market share in the state's loans and time deposits. In addition to its commercial operations, BRB performs a policy role for the region through lending operations that promote development and economic growth.
RATING SENSITIVITIES
VR and IDRs
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade of
A sustained decline in the operating profit/RWA ratio below 2.5%.
A sustained deterioration in the bank's CET1 ratio below 11%.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
A sustained recovery in the macroeconomic environment, including a reduction of vulnerabilities in the Brazilian economy that could underpin an IDR's Outlook revision to Stable.
Although unlikely, an upgrade of the sovereign.
BRB's foreign currency IDRs have a Negative Outlook, which makes an upgrade in the near future highly unlikely.
National Ratings
Changes in BRB's credit profile relative to its Brazilian peers could result in changes to its national ratings.
Support Rating
Material changes in Fitch's assessment of GDF's ability and willingness to provide support to BRB could affect the SR of the bank.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
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
BRB's support rating is driven by Fitch's internal opinion of GDF's creditworthiness.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
RATING ACTIONSENTITY/DEBT RATING PRIOR
BRB - Banco de Brasilia SA LT IDR BB- Affirmed BB-
ST IDR B Affirmed B
LC LT IDR BB- Affirmed BB-
LC ST IDR B Affirmed B
Natl LT A+(bra) Affirmed A+(bra)
Natl ST F1(bra) Affirmed F1(bra)
Viability bb- Affirmed bb-
Support 4 Affirmed 4
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
(C) 2021 Electronic News Publishing, source