Fitch Ratings today affirmed the ratings of Banco da Amazonia S.A. as follows:
--Foreign and local currency long-term Issuer Default Ratings (IDRs) at 'BBB-'; Outlook Positive;
--Foreign and local currency short-term IDRs at 'F3';
--Individual Rating at 'D';
--Support Rating at '2';
--Support Rating Floor at 'BBB-';
--National long-term rating at 'AA+(bra)'; Outlook Stable;
--National short-term rating at 'F1+(bra)'.
Banco da Amazonia S.A.'s (Banco da Amazonia) IDRs, which are equal to the Sovereign Rating, derive from the support of its major shareholder, the National Treasury, a body controlled by the Federal Republic of Brazil, and reflect the strategic importance of the bank to the development of the country's northern region. Furthermore, based on the support rationale aforementioned, the Positive Outlook assigned on June 29, 2010 to Banco da Amazonia's Foreign and Local Currency L-T IDRs reflects the revision in the Outlook to Positive from Stable of Brazil's Sovereign IDRs, on June 28, 2010. The bank's long-term ratings would be reviewed in case of changes to the Sovereign rating.
The Individual Rating reflects the bank's stable franchise, ensured by the Constitutional Fund of the North (FNO) which assures it a stable and low-cost funding base and good liquidity. On the other hand, it also reflects its limitations in putting into timely effect its restructuring plan; as with other public banks, the administration is subject to political influence, difficulties in achieving profitability in line with its peers, and a significant unfunded pension liability which has yet to be fully determined and which will continue to affect results going forward.
A significant portion of the bank's credit exposure is concentrated with micro, small, and medium-sized companies. In addition to the loan portfolio on its balance sheet, the bank shares 50% of the credit risk in loans extended by the FNO (which amounted to BRL3,7 billion at December 2009). In 2009, Banco da Amazonia recorded high delinquency growth in the rural sector, where the credit risk is often subject to political decisions affecting this segment, besides having suffered an impact on its portfolio from beef suppliers, lumber dealers and cast iron companies. Consequently, the bank's results have been significantly affected by high loan loss provision expenses. At a time when most of the banking system has seen asset quality improve, the bank recorded provision expenses in first half 2010 (1H'10) 113% higher than in 1Q'09, even as net charge-offs rose to a high 9,9% of loans. An increase in the restructuring of impaired loans led to a 35% decline in provisions in 2Q'10, resulting in stable expenses in that semester. Fitch is monitoring asset quality trends, and a resumed deterioration could result in downward pressure on Banco da Amazonia's Individual rating.
Banco da Amazonia's leverage showed substantial growth in 2007, when its credit portfolio increased by 45%, and in 2008 and 2009, given the reduced profitability. Furthermore, the bank has paid significant dividends (a 24% payout until 1H'10, 104% in 2009, 50% in 2008). Nevertheless, its leverage remains adequate and the quality of its capital, almost entirely Tier I, is good.
Banco da Amazonia is focused on very small and small rural producers, in addition to very small, small, and large companies in the northern region of the country. Its operations encompass nine Brazilian states and approximately 23.6 million inhabitants.
Additional information available at www.fitchratings.com or www.fitchratings.com.br.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 18, 2010);
--'National Ratings: Methodology Update' (Dec. 18, 2006).
Applicable Criteria and Related Research:
National Ratings - Methodology Update
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=305544
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685
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Contacts:
Fitch Ratings
Primary analyst:
Edgard Dias, +55 - 11 -
4504-2600
Associate Director
Fitch Ratings Brasil Ltda.
Rua
Bela Cintra 904 - 4th floor
Sao Paulo, SP, Brazil
or
Secondary
analyst:
Luiz Claudio Vieira, +55 - 21 - 4503-2600
Associate
Director
or
Committee Chairperson:
Peter Shaw,
+1-212-908-0553
Managing Director
or
Media Relations, New
York
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com
Media
Relations, Rio de Janeiro
Jaqueline Carvalho, +55 21 4503 2623
jaqueline.carvalho@fitchratings.com