S&P: Banco Bradesco's global, national scale ratings affirmed, outlook still negative

Friday, April 21, 2017


By S&P

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  • Despite Brazil's tough economy, domestic lender, Bradesco, has maintained its prominent position as a universal bank and its leading position in the insurance market, further strengthened by the acquisition of HSBC Bank Brasil. Although the bank's asset quality has deteriorated, it remains in line with the industry average and with our expectation.
  • We expect Bradesco to expand its lending portfolio in 2017 at a modest peace due to weak economy and in line with the industry average, at below inflation rate. Real credit growth should pick up in 2018 as the economy recovers.
  • We're affirming our 'BB/B' global scale and 'brAA-/brA-1' national scale ratings on Bradesco.
  • The negative outlook on the bank reflects that on the sovereign because its ratings limit those on Bradesco.

SAO PAULO (S&P Global Ratings) April 19, 2017--S&P Global Ratings affirmed its 'BB/B' global scale and 'brAA-/brA-1' national scale ratings on Banco Bradesco S.A. (Bradesco). At the same time, we affirmed our 'brAA-' national scale ratings on its core subsidiary, Bradesco Capitalização S.A. The outlook remains negative.

Our ratings on Bradesco reflect the risk of operating during Brazil's economic slump. The ratings are supported by the bank's predominant business position and sound market share, which further strengthened after the acquisition of HSBC Bank Brasil, and with the leading position in the insurance market. The bank's asset quality has deteriorated in 2016 due to the sharp contraction of the economy that has taken a toll on both corporate and individual borrowers.

And we believe the increasing level of renegotiated loans in the financial system will continue adding pressure to the system's credit quality. On the other hand, Bradesco's risk-adjusted capital (RAC) ratio has remained in line with our expectation, at 4.4%, and we expect it to remain fairly stable in the next two years thanks to the still sound internal capital generation that benefits from the diversified sources and non-interest income. Funding and liquidity metrics remain healthy with stable funding ratio of 101.6% and broad liquid assets to short-term wholesale funding of 1.47x.

Under our bank criteria, we use our Banking Industry Country Risk Assessment's (BICRA) economic risk and industry risk scores to determine a bank's anchor, the starting point in assigning an issuer credit rating. Our anchor for a commercial bank operating only in Brazil is 'bb+', based on the country's economic risk score of '7' and an industry risk score of '5 ' (please see "Banking Industry Country Risk Assessment: Brazil," published March 22, 2017, on Global Credit Portal). We assess the economic risk trend as negative. In our view, economic conditions remain extremely challenging. If Brazil fails to come out of a recession in 2017, yielding higher-than-expected bank losses that compromise the fundamentals of larger lenders, we could reassess the impact of the correction phase and revise our BICRA to a weaker category. We view the banking sector's industry risk trend as negative. In our view, there is at least a one-in-three chance that corruption investigations--such as Lava Jato and Zelotes that has already implicated senior management of domestic banks--could weaken credit quality of a large number of banks. Such a scenario would prompt us to revise our assessment of governance and transparency in our institutional framework score.