Outlook On Nine Brazilian Banks Revised Following Lower Downside Risk For The Sector

  • On March 18, 2019, S&P Global Ratings revised the trend on its Banking Industry Country Risk Assessment (BICRA) of Brazil to stable from negative, reflecting our opinion that the Brazilian economy will continue to recover in the next two years, supporting banks' efforts to stabilize asset quality metrics and reduce the need for additional provisions.
  • We also believe asset quality metrics will continue gradually improving, and the risk of them worsening due to renegotiated and restructured loans has decreased. Moreover, recent corruption investigations in the financial sector involved individual cases that didn't affect the system as a whole, and in our view, the risk for systemic contagion from the investigations has diminished.
  • As a result of the lower downside risk for the sector, we revised the outlook on the issuer credit ratings on nine financial institutions, and at the same time, maintained the stable or negative outlook on five entities.
SAO PAULO (S&P Global Ratings) March 18, 2019--S&P Global Ratings affirmed 
Brazil's BICRA at group '6', reflecting an economic risk score of '7' and 
industry risk score of '5'. We revised the banking economic and industry risk 
trends to stable from negative. 

At the same time, we affirmed the ratings and revised the outlook on nine 
Brazilian financial institutions, and affirmed the ratings and kept the 
outlook on five entities.

The rating actions take into account our view that the risk of banks' balance 
sheets worsening further because of the recent economic crisis has decreased. 
We expect the amount of non-performing and renegotiated loans to gradually 
decrease and for lending growth to accelerate to about 10% over the next two 
years. System-wide non-performing loans reached 2.8% of total loans and 
charge-offs about 3.1% in 2018. We expect these ratios to improve to about 
2.6% and 2.7%, respectively, this year. Moreover, the Brazilian financial 
system's funding structure and competitive dynamics have remained healthy 
despite the challenging economy in the past three years. Additionally, the new 
government is implementing measures to reduce market distortions that were 
introduced by the large presence of government-owned banks.

As a result of the sector's lower downside risk, we affirmed the ratings and 
revised the outlook on the long-term global scale and/or national scale issuer 
credit ratings on the following entities: 
  • Banco BTG Pactual S.A.;
  • Banco Daycoval S.A.;
  • Banco do Estado do Rio Grande do Sul S.A.;
  • Banco Inter S.A.;
  • Banco Mercantil Do Brasil S.A.;
  • Banco Pan S.A.;
  • Banco Paulista S.A.;
  • Banco Sofisa S.A.; and
  • Parana Banco S.A.
We affirmed the ratings and kept the stable outlook on the following entity:
  • Banco Fator S.A.
We affirmed the ratings and kept the negative outlooks on the following 
  • Banco de Desenvolvimento de Minas Gerais S.A. - BDMG;
  • Banco Fibra S.A.;
  • Banco Original S.A.; and
  • Caruana S.A. - Sociedade de Credito, Financiamento e Investimento.
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