SAO PAULO--(BUSINESS WIRE)--In Fitch Ratings' view, the recent breach in the Tier 1 Regulatory Capital of China Construction Bank Brasil S.A. (CCB Brasil) will be temporary and resolved in the short term, as support from its ultimate parent, China Construction Bank Corporation (CCBC; foreign currency long-term Issuer Default Rating [IDR] 'A'; Outlook Stable) is expected to be forthcoming. Thus, CCB Brasil's ratings are unaffected by the event.
As per December 2015 financial statements, CCB Brasil reported a Tier 1 capital ratio of 4.3% (below the minimum regulatory requirement of 6%). This was mainly due to increasing credit costs on its balance sheet over the last few years, given the decision to be more conservative in its shareholder subscription process, combined with a contraction in the economic scenario. The local regulator did not request additional formal explanations and allowed CCB Brasil to continue operating, as it has been adequately informed in advance on the capitalization plans for the Brazilian subsidiary. This includes an equity injection of USD200 million to take place in the near term. Under this scenario, the new Tier 1 ratio would be close to 9% - well above the minimum required.
CCB Brasil's ratings are based on Fitch's opinion that the bank would receive support, if required, given the bank's strategic importance to its parent company. CCBC has been very active in extending support through several liquidity lines, in the total amount of USD1 billion, which has allowed the local operation to repay costly sources, such guaranteed deposits (known locally as DPGE) and time deposits. In September 2015, CCBC also made a USD100 million Tier II capital injection to CCB Brasil, which improved their regulatory ratio to 14.7% at the end of 2015.
Multiple downgrades in CCBC's IDRs or a lessened ability and/or propensity to support CCB Brasil would lead to a negative rating action of CCB Brasil's ratings; this is currently not Fitch's base case scenario. In any case where the planned capital injection is not concluded in the short term, Fitch will reevaluate the propensity of support from the parent (CCBC) to the Brazilian subsidiary.
Fitch currently rates CCB Brasil as follows:
--Long-term National Rating 'AAA( bra)'; Outlook Stable;
--Short-term National Rating 'F1+(bra)'.
Additional information is available on www.fitchratings.com