Fitch Ratings has affirmed the following ratings of Banco Bradesco S.A. (Bradesco):
--Long-term Foreign Currency Issuer Default Rating (IDR) at 'BBB+'; Outlook Stable;
--Short-term Foreign Currency IDR at 'F2';
--Local Currency long-term IDR at A-; Outlook Stable;
--Local Currency short-term IDR at 'F1';
--Viability Rating at 'a-';
--Support Rating at '2';
--Support Rating Floor at 'BBB-';
--Long-term National Rating at 'AAA(bra)'; Outlook Stable;
--Short-term National Rating at 'F1+(bra)';
--Subordinated notes due September 2019 at 'BBB';
--Subordinated notes due January 2021 at 'BBB';
--Subordinated notes due March 2022 at 'BBB'.
The affirmation of the Viability Rating (VR) is based on Bradesco's stable performance through various economic cycles. The bank's conservative credit culture continues to produce satisfactory asset quality and profitability metrics, despite a slight deterioration in both areas over the past several quarters driven by mostly by systemic factors. Bradesco reported a solid Tier I regulatory capital of 11.8% at end June 2012. Primarily due to Fitch's methodology, which excludes Bradesco's significant equity of the group's profitable insurance subsidiaries, Bradesco has a Fitch Core Capital ratio of 6.2%.
A significant and sustained drop in the Tier 1 Capital Ratio could result in a review of the VR for potential downgrade. Although not expected by Fitch, a downgrade of the VR could also be triggered by a significant deterioration in asset quality that would affect the bank's capital generation required to support business growth. The current level of the VR at 'a-' is unlikely to improve in the near term given the current challenges of the Brazilian banking environment with regard to asset quality and pricing.
Bradesco's IDRs and National Ratings reflect the bank's continued good performance and frequent market share leadership across its many segments. Bradesco's importance to the Brazilian banking system is incorporated in its Support Rating of '2' and Support Rating Floor of 'BBB-'.
Bradesco's Foreign Currency IDR is currently constrained by the Country Ceiling. An upgrade of Brazil's sovereign rating would translate to an upgrade of the bank's long-term Foreign Currency IDR; conversely, a downgrade in the sovereign rating would likely result in a downgrade in the bank's long-term Currency IDR. However, despite an improvement in the sovereign rating, an improvement in the Local Currency IDR is unlikely in the near term.
The bank has a strong franchise and market share in many banking segments in Brazil, supported by its wide and recently expanded branch network. In addition, the bank's diversified client and earnings base is expected to continue to contribute to the bank's growth and good overall performance, despite an expected scenario of high credit costs, low domestic economy activity and tighter margins which also will affect its main competitors. To address the challenge of operating with tighter margins, Bradesco expects to continue its focus on cost control, growth of fee revenues, and selectivity with credit approvals to minimize provisions. Thus the effect of tighter margins on near-term profitability metrics is not expected to be that significant in the near term, especially when given the size of the existing portfolios that were built with transactions that had higher spreads.
Bradesco also announced a reduction in its guidance for credit portfolio growth from a range of 18-22% to 14-18% due primarily to less optimistic forecasts related to its retail lending to individuals and lending to SMEs. Despite this lower outlook, Fitch expects that Bradesco's profitability should continue to compare well to its peer banks.
Bradesco's credit quality ratios have remained satisfactory, and most indicators rank better than its large private sector bank peers. The bank's NPL levels for individuals and SMEs seem to have begun stabilizing although the total non-performing ratio suffered a small increase in the corporate portfolio due to specific borrowers which required additional loan loss provisions. Bradesco's loan loss reserve coverage of NPL over 90 days continues above-average at nearly 1.8X as of June 2012. Fitch does not expect to see any significant deterioration in Bradesco's credit portfolio in the near term despite the continuation of the challenging economic domestic scenario.
Given the expected satisfactory performance by the bank in the coming years, the gradual implementation of local rules of Basel III is not expected to severely impact Bradesco's Tier 1 Common ratio. Per management's forecast, even with full implementation of the imposed deductions the forecasted level would be comfortably above the minimum requirement of 5.5%.
Bradesco is the second largest private sector financial conglomerate in Brazil where, through its extensive nationwide branch network, it is one of the private sector market leaders in terms of deposits, credit, asset management and insurance. With a solid and diversified base of depositors and customers, Bradesco is considered locally as a safe haven in times of crisis.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'National Ratings Criteria' (Jan. 19, 2011);
--'Global Financial Institutions Rating Criteria' (Aug. 16, 2011);
--'Treatment of Hybrids in Bank Capital Analysis' (July 9, 2012);
--'Banco Bradesco S.A.' (Oct. 13, 2011).
Applicable Criteria and Related Research:
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=649171
Treatment of Hybrids in Bank Capital Analysis
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682453
Banco Bradesco S.A.
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=646312
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