NEWSMAKER-BOJ chief Kuroda says "no reason" to withdraw stimulus now
* BOJ kept policy steady this month, eyeing underlying inflation
Overview -- We believe that BDMG plays a key role as the main long-term financing instrument for strategic sectors in the state, and it is therefore a highly important economic policy tool for the state government. -- We are assigning our 'BBB-' long-term credit rating and 'brAAA' long-term national scale rating to BDMG. The outlook is stable. -- The stable outlook on BDMG reflects that on the State of Minas Gerais, as we expect the ratings on the bank to move in tandem with those on the state. Rating Action On Nov. 23, 2012, Standard & Poor's Ratings Services assigned its 'BBB-' foreign and local currency long-term credit rating to Brazilian bank Banco de Desenvolvimento de Minas Gerais S.A. - BDMG (BDMG). At the same time, we assigned our 'brAAA' long-term national scale rating to BDMG. The outlook is stable. The bank's stand-alone credit profile (SACP) is 'bb+'. Rationale The ratings on BDMG reflect our view of its "weak" business position, "very strong" capital and earnings, "moderate" risk position and "moderate" funding and liquidity, as our criteria define the terms. We also view BDMG as a government-related entity (GRE) and consider that there is a "very high" likelihood that the bank would receive timely and sufficient extraordinary support in the event of financial distress. Our bank criteria use our Banking Industry Country Risk Assessment (BICRA) economic risk and industry risk scores to determine a bank's anchor, the starting point in assigning an issuer credit rating. Our anchor for a commercial bank operating only in Brazil is 'bbb'. Our economic risk assessment reflects our opinion that economic improvements and cautious fiscal and monetary policies have added to the Brazilian economic authorities' flexibility to manage significant external shocks and potential distortions arising from the current economic expansion in Brazil. We believe these potential risks remain manageable, and the central bank's proactive stance has contained them. We assess industry risk based on our view of Brazil's sound regulation, good regulatory track record, and high and stable share of core deposits. We consider the banking sector's moderate risk appetite as a positive factor. The bank is fully owned by the State of Minas Gerais (BBB-/Stable/--), 92.73% directly and 7.27% indirectly through Companhia de Desenvolvimento de Minas Gerais (CODEMIG). The rating on BDMG reflects our opinion that there is a "very high" likelihood that the State of Minas Gerais would provide timely and sufficient extraordinary support to the bank in the event of financial distress. In accordance with our criteria for GREs, we base our rating approach on our view of the following: -- BDMG's has a "very important" role in the State of Minas Gerais as the bank covers some of the market failures in the distribution of financing in the state, putting special emphasis on sectors the government consider critical for the state development as well as medium and small enterprises that would not have access to credit if it were not by the BDMG. The bank is key to the local economic strategy and important for long-term investments and infrastructure financing that the state requires. -- The bank's "very strong" link to the state's government, reflected by the long track record of support through capital injections. We assess BDMG's business position as "weak." This stems from BDMG's geographic concentration in the south east region of Brazil (mainly in Minas Gerais). This also reflects the bank's position as the eighth-largest public financial institution in the country, with its R$3 billion in assets accounting for less than 1% of the banking system's total assets. The bank operates with its own resources and also with domestic public onlendings (funding received from the government through Banco Nacional de Desenvolvimento Economico e Social [BNDES; foreign currency BBB/Stable/--; local currency A-/Stable/--]). BDMG has benefitted from its long-term relationship with BNDES as both banks seek to foster development in the state. In addition, it administrates the development funds set up by the Minas Gerais state government to finance programs and projects that foster development in Minas Gerais. The bank has recently obtained a license to strengthen the capital structures of strategic companies based in Minas Gerais by acquiring minority equity holdings through its subsidiary BDMGTEC Participacoes (not rated). We expect that these types of transactions will become more frequent in the coming years. The bank lends to large companies (52%), small and midsize enterprises (21%), micro companies (1%), municipalities (19%), and individuals (8%). In our view, BDMG's capital and earnings' position is "very strong," based on our forecast of an average risk-adjusted capital (RAC) ratio of about 28% for the next couple of years. This reflects our base-case scenario, which forecasts an approximate 30% increase in the bank's lending for 2012 and 35% in 2013. We also anticipate that its net interest margin will remain at the current level, resulting in return on assets (ROA) of 2.2% for 2012 and 2.3% in 2013, with no asset quality deterioration. As of June 2012, BDMG's Basel II ratio was 33.5% and its Tier 1 ratio was 33.3%. Additionally, the State of Minas Gerais has continuously injected capital into the bank in the past despite its high capital ratios, and has allowed the bank to retain its dividends in 2012. The bank is an important instrument for long-term financing in the region, and therefore we think that the state government will continue to provide any capital support needed for growth. We assess BDMG's risk position as "moderate," based on its above-average growth and its highly concentrated loan portfolio. The bank's loans portfolio has increased above the market average in the past few years, and has posted a high growth rate even during recent downturns. This reflects its role as a government instrument to promote growth when investment is low. The bank has a highly concentrated loan portfolio with its exposure to companies that the State of Minas Gerais considers to have strategic importance. The bank's largest 20 exposures represent 35% of its customer loans. Partially offsetting this concentration is the bank's continued strong asset quality. We believe the bank will remain focused on servicing its core customers with traditional expertise and maintaining very good underwriting standards, adequately managing funding mismatches. Additionally, BDMG is looking to diversify--focusing particularly on micro and small companies. The bank has improved customer access to its products through new platforms that will allow it to expand further into the interior of the State of Minas Gerais. We assess BDMG's funding and liquidity as "moderate," based on our view that its funding is below average and its adequate liquidity. BDMG's main challenge in the future will be to diversify its funding base. The bank has recently acquired the license to obtain funds in capital markets through issuing financial bills, and has announced the planned issuance of R$350 million of these bills in 2012. BDMG's funding base is stable and long term; 75% of the bank's liabilities are classified as long term on the balance sheet. However, the bank's funding sources are deeply concentrated in domestic onlendings by official institutions, which accounted for 89% of its funding base as of June 2012. We assess BDMG's liquidity as "adequate," as the bank operates a cash with security margin sufficient to meet the minimum liquidity level required by its policy of 35% of total equity. We consider that BDMG's funding sources are unlikely to be withdrawn, even during periods of market stress. Outlook The stable outlook on BDMG reflects that on the State of Minas Gerais as we expect the ratings on the bank to move in tandem with those on the state. Given the bank's SACP of 'bb+' and our assessment of a "very high" likelihood of extraordinary sovereign support, any upgrade or downgrade of the state should be followed by a similar rating action on BDMG. Additionally, if the bank's expansion significant reduces asset quality, we could take a negative rating action on the bank. Ratings Score Snapshot Issuer Credit Rating BBB-/Stable/-- SACP bb+ Anchor bbb Business Position Weak (-2) Capital and Earnings Very Strong (+2) Risk Position Moderate (-1) Funding and Liquidity Moderate (-1) Support 1 GRE Support 1 Group Support 0 Sovereign Support 0 Additional Factors 0 Related Criteria And Research -- Banks: Rating Methodology And Assumptions, Nov. 9, 2011 -- Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011 -- Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010 -- Banks: Bank Capital Methodology And Assumptions, Dec. 6, 2010 Ratings List Ratings Assigned Banco de Desenvolvimento de Minas Gerais S.A. - BDMG Counterparty Credit Rating Global scale BBB-/Stable/-- National scale brAAA/Stable/-- Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
* BOJ kept policy steady this month, eyeing underlying inflation
NEW YORK, March 24 Rising short-term interest rates in the United States are prompting Lipper Award-winning bond fund managers to add emerging-market debt and non-agency backed residential mortgages that they say offer more potential for gains in the year ahead.