Fitch Affirms Banco Santander (Brasil) S.A.'s IDRs; Outlook Negative

SAO PAULO--()--Fitch Ratings has affirmed the Long-Term Foreign Currency Issuer Default Rating (IDR) of Banco Santander Brasil S.A. (Santander Brasil) at 'BB+'/Outlook Negative. Fitch has also affirmed the bank's other ratings and the National Ratings of Santander Leasing S.A. - Arrendamento Mercantil (Santander Leasing) at 'AAA(bra)'/Outlook Stable. A complete list of rating actions for the bank and its leasing subsidiary follows at the end of this press release.

KEY RATING DRIVERS

IDRS, SUPPORT RATING, NATIONAL RATINGS AND SENIOR DEBT

Santander Brasil's IDRs are driven by the support that Fitch believes the bank would receive from its parent, Banco Santander S.A. Spain (SAN), should it be needed.

Fitch's affirmation of Santander Brasil's Support rating at '3' reflects Fitch's view that there is high probability of support to the bank from SAN, if needed. Fitch views the Brazilian subsidiary as very important for SAN for earnings diversification; Santander Brasil shares the same brand and is highly integrated with its parent, having contributed 20%-25% of the group's consolidated net income over the past few years.

Currently, the IDRs of Santander Brasil is constrained by the Sovereign Rating of Brazil. As such its Local Currency LT IDR of 'BBB-' is limited by the maximum uplift of two notches above the sovereign rating, while the FC LT IDR of 'BB+' is equalized to and limited by Brazil's Country Ceiling of 'BB+'.

The unfavorable operating environment for Brazil has reduced the growth prospects of Santander Brazil along with the rest of the country's financial industry. Even so, the Brazilian subsidiary is expected to continue contributing significantly to the group's earnings. Given the relative size of Santander Brasil to SAN, Fitch adopts a one-notch differential even though the Brazilian subsidiary is considered core to SAN.

Santander Brasil's National Ratings reflect the relative position of Santander among other Brazilian issuers and these are at the highest level in the local scale, since the bank is rated on the international scale above the Brazil's sovereign rating.

VR

Fitch affirmed Santander Brasil's VR at 'bb', reflecting its strong capitalization, extensive local franchise, and its diversified, self-funded profile, as the bank's funding is mostly sourced within its home market. Santander Brasil does not rely on the parent for funding its day-to-day business. Its management team and board of directors enjoy a high degree of operating independence.

Santander Brasil's VR also reflects the challenges to improve profitability, especially under an unfavourable operating environment and macroeconomic scenario. The bank's profitability still does not compare as well to that of its peers. A more contained risk appetite has resulted in improvements in the bank's overall risk management function and on asset quality indicators, which now are more aligned with those of its domestic private-sector peers' VR.

The bank's diversified funding, supported by its large branch network and client base, enables the bank to remain liquid and independent. Despite a special dividend of BRL6 billion to existing shareholders in 2014, Santander Brasil's capital metrics still compare well to those of its peer group.

Santander Leasing

Santander Leasing's ratings are driven by potential support from Santander Brasil, since Fitch views the leasing subsidiary as an integral part of Santander Brasil's franchise as it shares management, policies and strategies with its direct parent. As a result, Santander Leasing's National scale ratings are equalized with those of Santander Brasil.

The National ratings of Santander Leasing's legacy Tier 2 subordinated issuances are one notch below the National ratings of Santander Brasil, as they incorporate Fitch's loss severity assumption in case of liquidation.

RATING SENSITIVITIES

IDRS, SUPPORT RATINGS, NATIONAL RATINGS AND SENIOR DEBT

Changes in the willingness and capacity of SAN to provide support to Santander Brazil may result in changes in the IDRs, National Ratings and Support Rating of Santander Brasil. Santander Brasil's Foreign Currency IDR is constrained by Brazil's country ceiling ('BB+').

Santander Brasil's IDRs and debt ratings are also sensitive to a change in Fitch's assumptions around rating factors affecting the sovereign. The Negative Outlook on the IDRs reflects Fitch's current negative view on the operating environment for Brazilian banks and mirrors the Negative Outlook on Brazil's Sovereign rating.

Changes on Brazil's Sovereign Rating could result in changes on Santander Brasil's IDRs,

National Ratings could be revised in case of changes on the Sovereign Rating that leads to a revision in the Brazilian national scale or in case the bank's IDR is downgraded due to a change on Fit assessment on the support from SAN.

The Stable Outlook assigned to the bank's National Long Term Rating reflects the fact that Fitch does not expect the bank's relative position in the national scale to change as there is no expected deterioration on its credit profile.

VR

Santander Brasil's VR is at the sovereign level and while the bank maintains a good credit profile, Fitch does not consider that it can be rated above the sovereign on its own intrinsic merits.

If asset quality becomes relatively inferior to its peers and ROAA is consistently below 0.5%, negatively affecting its comfortable capital ratios, the result could be a negative action on the VR.

Santander Leasing

Santander Leasing's ratings will move in tandem with the ratings of Santander Brasil.

Fitch has affirmed the following ratings:

Santander Brasil:

--Long-term foreign currency IDR at 'BB+', Outlook Negative;

--Long-term local currency IDR at 'BBB-'; Outlook Negative;

--Short-term foreign currency IDR at 'B';

-- Short-term local currency IDR at 'F3';

--Viability rating at 'bb';

--Support rating at '3';

--National Long-term rating at 'AAA(bra)'; Outlook Stable;

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

Santander Brasil Senior notes due 2017:

--Long-term foreign currency rating at 'BB+'.

Santander Leasing:

--National long-term rating at 'AAA(bra)'; Outlook Stable;

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

Santander Leasing 4th and 5th Subordinated Debentures due 2017:

--National long-term rating at 'AA+(bra) .

Additional information is available on www.fitchratings.com

Applicable Criteria

Global Bank Rating Criteria (pub. 15 Jul 2016)

https://www.fitchratings.com/site/re/884135

National Scale Ratings Criteria (pub. 30 Oct 2013)

https://www.fitchratings.com/site/re/720082

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1011139

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1011139

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Eduardo Ribas
Director
+55 11 4504-2213
Fitch Rating Brasil Ltda.
Alameda Santos 700
Sao Paulo, SP, Brazil
or
Secondary Analyst
Raphael Nascimento
Associate Director
+55 11 3957-3664
or
Committee Chairperson
Alejandro Garcia
Managing Director
+1 212 908-9137
or
Media Relations
Alyssa Castelli
+1-212-908-0540
New York
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Eduardo Ribas
Director
+55 11 4504-2213
Fitch Rating Brasil Ltda.
Alameda Santos 700
Sao Paulo, SP, Brazil
or
Secondary Analyst
Raphael Nascimento
Associate Director
+55 11 3957-3664
or
Committee Chairperson
Alejandro Garcia
Managing Director
+1 212 908-9137
or
Media Relations
Alyssa Castelli
+1-212-908-0540
New York
alyssa.castelli@fitchratings.com