Moody’s drops Banrisul

Moody's Investors Service said it downgraded Banco do Estado do Rio Grande Do Sul SA’s (Banrisul's) long-term global and national scale local- currency deposit ratings to Ba3 and A1.br, from Ba2 and Aa3.br, respectively.

The bank's foreign currency subordinate debt rating was also downgraded to B1 from Ba3, and its baseline credit assessment (BCA) and long-term counterparty risk assessment were lowered to ba3 and Ba2(cr), from ba2 and Ba1(cr), respectively.

The bank's other ratings were not affected by this action.

The outlook on all ratings was revised to stable, except for the foreign currency deposit rating, which is constrained by Brazil's foreign currency deposit ceiling of Ba3 and remains on negative outlook in line with the sovereign rating.

This concludes the review for downgrade that began on July 15.

Moody’s said the downgrade reflects the deterioration in Banrisul's financial profile following the bank's R$1,251,000,000 acquisition of the right to provide payroll services for state employees from its majority shareholder, the State of Rio Grande Do Sul (unrated). The acquisition resulted in a significant reduction to the bank's adjusted capitalization levels, as calculated by Moody's, and is also expected to put pressure on the bank's profitability.

In addition, asset quality continues to deteriorate due to Brazil's weak economic environment, the agency explained.

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