April 28, 2014 / 5:17 PM / in 4 years

Fitch Affirms Ratings; Maintains Outlooks on 3 Brazilian Subsidiaries of Foreign-Owned Banks

(The following statement was released by the rating agency) SAO PAULO/RIO DE JANEIRO, April 28 (Fitch) Fitch Ratings has affirmed the National ratings of Banco Caixa Geral Brasil S.A. (BCG-Brasil), Banco Rabobank International Brasil S.A. (Rabobank) and Banco Credit Agricole Brasil S.A. (BCAB). The Rating Outlook on BCG-Brasil's rating remains Negative, while the Outlooks on Rabobank and BCAB's ratings remain Stable. A full list of rating actions can be found at the end of this release. Fitch considers all three banks as 'strategically important subsidiaries', according to its methodology 'Rating FI Subsidiaries and Holding Companies' (published in August 2012). Therefore, its National ratings are based on support from their respective ultimate parents Caixa Geral de Depositos S.A. (CGD, Long-term Issuer Default Rating 'BB+'/Outlook Negative), Rabobank Group (RBG, Long-term IDR 'AA-'/Outlook Negative) and Credit Agricole Corporate and Investment Bank (Cacib, Long-term IDR 'A'/Outlook Stable). KEY RATING DRIVERS BCG-Brasil: The affirmation of BCG-Brasil's ratings reflects the continued support from its parent, CGD. Fitch considers BCG-Brasil as a strategically important subsidiary of CGD, given its high managerial and operational integration and synergies with the parent and their common branding. Additionally, the agency also considered CGD's proven commitment to date (also evidenced by a so-far un-utilized stand-by credit facility of EUR120 million made available by the parent) and CGD's small size within the group which makes the cost of potential support relatively low. Fitch believes that BCG-Brasil would receive direct support from its parent, in case of need. BGC-Brasil's credit portfolio remains concentrated, with the 20 largest loans accounting for circa 57% of gross loans at end-2013. Despite a weak operating environment in 2013, the bank was able to maintain solid asset quality metrics, without any impaired loans (classified from 'D' to 'H' as per Brazilian regulators) by the end of the fiscal year. Fitch believes that there could be a rise in impaired loans in 2014 as a result of the expectations for the continuation of a challenging environment for the banking sector. In 2013 the bank had a net loss of BRL29.1 million, mainly due to the loss of the brokerage house (50%/50% owned by CGD's investment banking arm and BCG-Brasil) accounted for in BGC-Brasil through the equity method. The brokerage house posted a loss of BRL 57 million, out of which BRL10 million was due to operational losses and BRL47 million was due to non-recurring write-off of deferred tax credits. In spite of this, BGC-Brasil's capitalization remains solid. Capitalization ratios Fitch Core Capital (FCC) to weighted assets of 20.7% and regulatory capital ratio of 23.9%) provide strong cushion against risks derived from asset and liability concentrations. In the meantime, except for the stand-by credit facility, 12% of BCG-Brasil's non-equity funding was provided by the CGD group at end-2013. Rabobank: The affirmation of Rabobank's ratings reflects Fitch's opinion regarding the continued support from its parent. Rabobank is wholly owned by RBG, a bank that consists of 136 local cooperative banks in the Netherlands. It has strong franchises in the Dutch markets, where it accounts for roughly a quarter of the banking system's assets, being considered a systemically important bank by Dutch authorities. The Brazilian subsidiary specializes in food and agribusiness and its total assets represent a low 1% of RBG, indicating a relatively low cost of support, in case of need. Rabobank focuses on the food and agro industry, where players often face cash flow volatility, mainly due to weather conditions and political influences. In addition, some of the bank's clients are exposed to USD currency, which can occasionally translate into losses for the client, though not necessarily accompanied by liquidity problems. Rabobank has demonstrated strong credit risk management skills in the Brazilian market through the cycles, supported by its more than 24 years of experience in the country. The institution possesses a strong credit culture and systems to monitor such risks, in Fitch's opinion. During 2013 the weak economy led to an increase in the bank's charge-offs to a (still very low) 0.08% of average gross loans from 0.04% in 2012. Likewise, impaired loans (in the range of 'D' to 'H') increased to 2.9% (from 1.9% in 2012), and loan-loss reserve coverage fell to 54.6% (from 89.8%). Fitch believes that problem loans - particularly non-performing loans - could increase in 2014 due to a still lackluster economy coupled with uncertainties in the Brazilian agribusiness market. As observed with other foreign banks operating in Brazil, Rabobank does not operate with high capital margins. Depending on growth, the bank might receive a capital injection from RBG in the next couple of years. The injection of USD300 million as Tier II capital in 2012 helped it to maintain regulatory capital around 15.5%, while the FCC ratio improved to 9.64% at end-2013 from 8.04% at end-2012. Furthermore, non-equity funding from the RBG group corresponded to 22% of total funding at end-2013 (17% at end-2012). BCAB: The affirmation of BCAB's ratings reflects the continued support from its parent. BCAB maintains a high level of managerial and operational integration, strong synergies, and common branding with its parent (CACIB). In case of need, the cost of support would be low. BCAB's loan book remains concentrated, with the 10 largest clients (by economic group) representing a still high 84% of the total portfolio as per Dec. 2013 (89% in Dec. 2012), which can add some volatility to BCAB's results, in case of the deterioration of the financial profile of some of these groups. On the other hand, the institution benefits from good portfolio surveillance and vigilant credit monitoring in Fitch's view, partially mitigating the above-mentioned negative aspects. As a result, the institution's 90 days past-due credits-to-total credits remains zero. At end-2013, its loan portfolio (BRL1,069 million) was composed of only top companies rated 'AA' (92% of its portfolio) and 'A' (8%) - as per the Brazilian Central Bank's Resolution 2682/99. As expected, credit exposure through securities (notably, asset backed securities - FIDCs) continues to grow: BRL502million at end-2013 from BRL258million at end-2012. The FCC ratio remained high at 31.76% in June 2013, and was boosted by the capital injection of BRL365 million received in 2010, when the parent decided to further expand its operations in Brazil. As a result of the more difficult environment in the last few years, the bank adopted a more cautious approach, explaining the continuation of high capitalization. The proportion of funding from CACIB has increased to 47% at June 2013 (30% and 60% in 2012 and 2011, respectively). BCAB's results have been lower in recent years (ROE of 1.9% during 1H'2013 from an average of 5.7% during the four previous fiscal years). This performance was explained partially by the conservatism in lending operations, and, to a certain extent, by a more difficult economic backdrop in 2013 compared to previous years. RATING SENSITIVITIES In the case of all three banks (BCG-Brasil, Rabobank and BCAB), changes in the respective parents' ratings or in their propensity for support would affect the ratings of the Brazilian subsidiaries. In the case of Rabobank and BCAB, given the respective parents' current ratings, only a multi-notch downgrade of the parents' ratings would lead to a negative rating action on the national ratings. Fitch has affirmed the following ratings: BCG-Brasil: --National Long-term rating at 'A+(bra)', Outlook Negative; --National Short-term rating at 'F1(bra)'. Rabobank: --National Long-term rating at 'AAA(bra)', Outlook Stable; --National Short-term rating at 'F1+(bra)'. BCAB: --National Long-term rating at 'AAA(bra)', Outlook Stable; --National Short-term rating at 'F1+(bra)'. Contact: Primary Analyst Claudio Gallina Director +55 11 4504 2216 Fitch Ratings Brasil Ltda. Alameda Santos, 700 - 7 floor Sao Paulo, SP, Brasil Secondary Analyst Esin Celasun Director +55 21 4503 2626 Committee Chairperson Franklin Santarelli Managing Director +1 212 908 0739 Media Relations: Jaqueline Carvalho, Rio de Janeiro, Tel: +55 21 4503 2623, Email: jaqueline.carvalho@fitchratings.com; Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: -- National Ratings Criteria (Oct. 30, 2013); -- Rating FI Subsidiaries and Holding Companies (Aug. 10, 2012); -- Global Financial Institutions Rating Criteria (Jan. 31, 2014). Applicable Criteria and Related Research: Rating FI Subsidiaries and Holding Companies here National Scale Ratings Criteria here Global Financial Institutions Rating Criteria here Additional Disclosure Solicitation Status null/gws/en/disclosure/solicitation?pr_id=827956 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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