Moody's Investors Service, the rating services arm of Moody's Corporation MCO, downgraded ratings assigned to 29 Brazilian banks following the downgrade of Brazil's bond rating and lowering of the country ceilings for debt and deposits.
Itaú Unibanco Holding S.A. ITUB, Banco do Brasil S.A. BDORY, Banco Bradesco S.A. BBD and Banco Santander (Brasil) S.A. BSBR are among the 29 banks, ratings of which were lowered by Moody's. Specifically, Moody's downgraded the banks' baseline credit assessments as well as bank deposit and debt ratings.
While the change in the sovereign rating resulted in the ratings downgrade of the banks, “the bank's ratings may also face downward pressure if Brazil's very challenging operating environment results in a deterioration of their financial fundamentals, particularly profitability, asset quality, and capitalization,” Moody’s said in its statement.
Brazil's sovereign-credit rating was reduced to junk status, two steps below investment grade to Ba2, by Moody's on Wednesday. The outlook was changed to negative and highlighted the possibility of further downgrades.
Prior to that, Standard & Poor's ("S&P") Ratings Services, part of McGraw Hill Financial MHFI, stripped Brazil of its investment grade in September followed by a second downgrade last week. Moreover, Fitch Ratings cut Brazil to junk in December.
The move comes on the heels of the country's deteriorating macroeconomic and political environment as well as falling demand for Brazilian commodities from China. It also reflected the lack of progress made by the government in achieving its fiscal and economic reform objectives.
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