Fitch Publishes Banco de Brasilia S.A.'s 'BB+' IDR and 'bb-' VR

SAO PAULO & RIO DE JANEIRO--()--Fitch Ratings has published Banco de Brasilia S.A.'s (BRB) long-term Issuer Default Rating (IDR) of 'BB+' with a Stable Rating Outlook. At the same time, the agency has published BRB's 'bb-' Viability Rating. A full list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

Banco de Brasilia's IDRs reflect its strategic importance for the Government of the Federal District (Governo do Distrito Federal, GDF). In Fitch's opinion, GDF's financial support would be probable, although moderate, in a stress scenario. BRB acts as a commercial retail bank. Its activities are concentrated in the Federal District, where it holds 6% of Federal District credit operations and 14% of term deposits.

BRB's Viability Rating (VR) of 'bb-' reflects its regional relevance and recent franchise developments, with above average profitability, adequate liquidity and a stable deposit source. BRB benefits from a relatively cheap retail funding base. The VR also reflects fierce competition among the major Brazilian banks, which obliges BRB to heavily invest in technology. The VR is negatively affected by the bank's credit quality.

Credits past due over 90 days increased to 3.4% of the bank's total portfolio in September 2014, above the national finance system average of 3%. This was due to problems related mainly to civil construction and commerce companies, despite the high borrower fragmentation. However, the high participation among GDF public servants in payroll deductible loans was maintained, corresponding to 42% of total credit in the third quarter of (3Q'14), offsetting a sharper credit deterioration in 2015.

BRB's margins have been showing a slight reduction in recent periods, which mainly reflects higher funding costs, although the bank relies on a stable and low-cost retail client base. Despite the profitability indicators remaining compatible with its retail profile (1.4% ROAA in 3Q'14 and 1.7% in 2013), BRB projects 10-15% average annual growth in net income until 2016, which Fitch considers feasible given the bank's recent track record.

To finance the expansion of its activities, BRB has increased the share of financial instruments, including subordinated debts classified as Level 2, an alternative that is more advantageous when compared with guaranteed deposits. The main capitalization measure, Fitch's core capital (FCC), reached 14.3% in September 2014, also enhanced by the minimum dividend distribution of around 25%.

KEY RATING SENSITIVITIES

Controller Support: Any change to controller support, such as shareholding reduction to less than 51%, would lead to BRB's IDR ratings being equalized with its VR.

Asset Quality: The VR could be downgraded in case of significant deterioration in the bank's asset quality that reduced FCC ratio to less than 10%. Despite unlikely in the short run, the VR could be upgraded if BRB is able to maintain credit quality at its current levels and further reinforce its capital base.

The published ratings are as follows:

--Long-term IDR 'BB+', Stable Outlook;

--Short-term IDR 'B';

--Local currency long-term IDR 'BB+', Stable Outlook;

--Local currency short-term IDR 'B';

--Viability Rating 'bb-';

--Support Rating '3'.

Fitch currently rates the following:

--National long term-rating 'AA-(bra)', Stable Outlook;

--National short-term rating 'F1+(bra)'.

Additional information is available on www.fitchratings.com.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=962115

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Contacts

Fitch Ratings
Primary Analyst
Paulo Fugulin
Director
+55 - 11 - 4504-2206
Fitch Ratings Brasil Ltda.
Alameda Santos, 700 - 7th andar
Cerqueira Cesar - Sao Paulo - SP - CEP: 01418-100
or
Secondary Analyst
Jean Lopes
Director
+55 - 21 - 4503-2617
or
Committee Chairperson
Franklin Santarelli
Managing Director
+1-212-908-0739
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
New York
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Paulo Fugulin
Director
+55 - 11 - 4504-2206
Fitch Ratings Brasil Ltda.
Alameda Santos, 700 - 7th andar
Cerqueira Cesar - Sao Paulo - SP - CEP: 01418-100
or
Secondary Analyst
Jean Lopes
Director
+55 - 21 - 4503-2617
or
Committee Chairperson
Franklin Santarelli
Managing Director
+1-212-908-0739
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
New York
elizabeth.fogerty@fitchratings.com