* Decision lowers issuer ratings for Caixa, BNDES
* Government has used banks to aggressively grow loans
By Guillermo Parra-Bernal
SAO PAULO, March 20 Moody's Investors Service
lowered on Wednesday the long-term issuer ratings of Brazilian
state banks BNDES and Caixa Econômica Federal, citing their
eroding capital position after years of rapid credit expansion.
Analysts led by Alexandre Albuquerque cut ratings on state
development bank BNDES and on Caixa, the
country's largest mortgage lender, to "Baa2" from "A3,"
according to a statement. Both rankings, which are within
investment-grade ratings, bear a positive outlook - meaning that
an upgrade would be likely to happen within 12 to 18 months.
Likewise, the foreign currency senior unsecured debt ratings
of both lenders were downgraded to "Baa2" from "Baa1," with a
positive outlook, "in line with the positive outlook on Brazil's
government bond rating," Albuquerque said in a statement.
The unexpected decision reflects the growing concern among
investors and analysts over Brazil's increased use of state
lenders to revive growth regardless of the strategy's fiscal
Moody's said Wednesday's decision followed a deterioration
of core capital indicators at BNDES and Caixa that only worsened
in recent months.
BNDES and Caixa, which are fully controlled by the federal
government, have been ordered by President Dilma Rousseff to
boost credit access for individuals and companies while
aggressively reducing borrowing costs. At the same time, BNDES
and Caixa increased dividend payouts to the government, which
has in turn replenished their capital with Treasury debt instead
"This practice has resulted in relatively low core capital
levels, which limits the banks' ability to absorb losses in
situations of stress, thus weakening their standalone credit
strength," Albuquerque said in the statement.
By the end of last year, BNDES' core Tier 1 capital ratio
reached 8.4 percent, while Caixa's dropped to 6.6 percent - well
below the banking system's 12.4 percent average.
Caixa's loan book has risen by an annual average of 40
percent since 2009, while that of BNDES - which is almost three
times as big as the World Bank's - has more than quadrupled
since 2005. BNDES is considered as Brazil's main source of
long-term corporate credit.
The press offices at Rio de Janeiro-based BNDES and
Brasilia-based Caixa could not immediately respond to Reuters'
queries after hours.