TEXT-Fitch affirms Banif's IDR at 'BB' on recapitalisation approval

Wed Jan 9, 2013 10:16am EST

Jan - Fitch Ratings has affirmed Banif - Banco Internacional do Funchal,
S.A.'s (Banif) Long-term Issuer Default Rating (IDR) at 'BB',
Short-term IDR at 'B', Support Rating at '3' and Support Rating Floor (SRF) at
'BB'. At the same time, the agency has downgraded Banif's Viability Rating (VR)
to 'f' from 'c'. The rating actions follow the disclosure of capital needs and
the commitment of capital support from the Portuguese government. A full list of
rating actions is at the end of this commentary.

RATING ACTION RATIONALE
Banif's Long-term IDR is at its SRF of 'BB' and is driven by support from the
Portuguese state. Portugal has been supportive of its banks, injecting capital
as required from the EUR12bn capital backstop facility available for banking
sector recapitalisation under the IMF/EU support programme.

The downgrade of the VR was triggered by confirmation on 31 December 2012 by the
Portuguese Ministry of Finance, that approval had been granted for the state to
recapitalise Banif. The capital injection will comprise EUR700m of special
shares subscribed by the Portuguese state and the state's underwriting of an
additional EUR400m of hybrid instruments. Under Fitch's rating definitions and
criteria, Banif has failed, and would have defaulted had it not received
extraordinary support.

Banif's shareholders will approve the recapitalisation process on 16 January
2013. The process will be completed by end-January and this will boost Banif's
capital adequacy ratios to comply with the 10% core capital ratio required by
the Bank of Portugal.

RATING DRIVERS AND SENSITIVITIES - IDRs, SUPPORT RATINGS AND SENIOR DEBT RATINGS
Banif's Long-term IDR and SRF are one notch below Portugal's sovereign rating
('BB+'/Negative). This reflects Fitch's view that the state's propensity to
support the country's second-tier banks is marginally weaker than its propensity
to support systemically important banks. The SRFs assigned to the large banks
are equalised with the sovereign rating. The SRFs reflect Fitch's assessment of
available sovereign and international support for Portuguese banks available
under the IMF/EU support framework.

The Negative Outlook on Banif's Long-term IDR mirrors that on the sovereign.
This reflects the high correlation between bank and sovereign ratings in
Portugal, as is the case in many countries. Banif's Long-term IDR and SRF are
therefore sensitive to a downgrade of Portugal's sovereign rating. In addition,
the Negative Outlook reflects a potential change in Fitch's assumptions
regarding the Portuguese authorities' propensity to support Banif in the future.

RATING DRIVERS AND SENSITIVITIES - VR
Once capital is injected into Banif, the agency will reassess the bank's VR and
upgrade it to a level commensurate with its credit profile. Fitch believes this
is likely to be in the 'b' category, subject to completion of a full analysis.
In particular, Fitch will conduct a review of Banif's business plan, which
assumes a subsequent capital increase from private investors; an assessment of
loan and asset concentration, valuation of assets and funding and liquidity
profiles.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
The bank's subordinated debt and preference shares have been affirmed at 'C'.
Given the bank's weak financial profile, Fitch believes there is a high risk of
non-performance associated with these debt instruments. The ratings are
sensitive to an upgrade of Banif's VR.

The ratings actions are as follows:
Long-term IDR affirmed at 'BB', Outlook Negative
Short-term IDR affirmed at 'B'
VR downgraded to 'f' from 'c'
Support Rating affirmed at '3'
SRF affirmed at 'BB'
Senior unsecured debt affirmed at 'BB'
Senior unsecured short-term debt affirmed at 'B'
Lower Tier 2 subordinated debt issues affirmed at 'C'
Preference shares affirmed at 'C'

Additional information is available at www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable criteria, 'Global Financial Institutions Rating Criteria' dated 15
August 2012, 'Evaluating Corporate Governance' dated 12 December 2012 and
'Assessing and Rating Bank Subordinated and Hybrid Securities' dated 5 December
2012 are available at www.fitchratings.com.

Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Evaluating Corporate Governance
Assessing and Rating Bank Subordinated and Hybrid Securities