Fitch: Brazilian Banks Face Increased Volatility, Global Uncertainty and Economic Slowdown

SAO PAULO & NEW YORK--(BUSINESS WIRE)-- Link to Fitch Ratings' Report: Review and Outlook: Brazilian Banks
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=689039

Amidst a weaker macro scenario, Fitch Ratings deems that Brazilian banks are overall adequately prepared to face increased volatility.

While the Outlook for the Brazilian bank industry remains Stable, the banks face a host of challenges. In addition, the deceleration of the Brazilian economy and the alignment on the national rating of subsidiaries of foreign banks with the Rating Outlook of their parents have resulted in a marginal increase in Negative Outlooks, according to Fitch.

"Albeit its good fundamentals, credit deterioration and pressure on margins - along with a weaker macro scenario - create a more challenging environment for Brazilian banks," says Eduardo Ribas, Associate Director in Fitch's Financial Institutions Group.

Large Brazilian banks remain financially solid, showing adequate capitalization, good liquidity and access to funding, as well as higher profitability than local and international competitors.

Medium-sized and small bank's ratings are adjusted based on the challenges related to their size and their higher vulnerability to prolonged periods of greater uncertainty. Fitch notes that most of these banks have prepared themselves to endure an environment of higher volatility.

The significant credit expansion across the industry in 2010 and 2011 has increased credit costs to higher levels than the emerging markets and Latin American average and is the main factor pressuring margins in the medium term, especially in an environment of lower interest rates.

Credit quality deterioration has been intense and reflects the deceleration of the economy, which has been greater than initially projected. Greater rigor in credit concession in the recent vintages will slow delinquency growth over the medium term. At the same time, the greater level of individual indebtedness highlights the need to monitor credit expansion, especially considering that the unemployment rate remains at historically low levels.

The intensity in reducing spreads has varied between private and government banks. Initially, its effect has been marginal, but it is expected to accentuate over time in an environment of sustainable lower local interest rates. Similar to world banking sector trends, it is unlikely that Brazilian bank returns will revert to the high levels of the recent past.

For more information, see the special report titled 'Review and Outlook: Brazilian Banks Good Fundamentals, Credit Deterioration, Pressure on Margins - Old and New Challenges' is available on the Fitch Ratings web site at www.fitchratings.com, or by clicking on the link.

Additional information is available at 'www.fitchratings.com'.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Fitch Ratings
Elizabeth Fogerty, +1-212-908-0526
Media Relations, New York
elizabeth.fogerty@fitchratings.com
or
Eduardo Ribas, +55-11-4504-2213
Associate Director
Fitch Ratings Brazil Ltda
Alameda Santos,700 Seventh Floor
Sao Paulo, SP, Brazil
or
Pedro Gomes, +55-11-4504-2604
Director
or
Maria Rita Goncalves, +55 21 4503 2621
Senior Director
Financial Institutions, Latin America

Source: Fitch Ratings