NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the following ratings of Banco do Brasil S.A. (BdB):

--Long-term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BBB-'; Outlook Positive;

--Short-term Foreign and Local Currency IDRs at 'F3';

--Support Rating at '2';

--Support Rating Floor at 'BBB-';

--Individual Rating at 'C/D';

--Long-Term National Rating at 'AA+(bra)'; Outlook Stable;

--Short-Term National Rating at 'F1+(bra)'.

These affirmations of the IDRs and National Ratings reflect Fitch's belief in federal government support for BdB if needed, in light of its government ownership and its systemic importance. BdB's IDRs are at their Support Floor, and are the same as those assigned to the sovereign. The Positive Outlook for its IDRs derives from the Outlook for the sovereign rating and federal government support capacity.

The Individual Rating considers its solid and expanding franchise, which has benefited its operational performance, and which Fitch expects will continue to support the bank's growth. With a solid and diversified base of deposits and customers, BdB is considered a safe haven in times of crisis. The Individual Rating also considers its significant exposure to agribusiness risk and the relatively poor quality of its tight capital base, pressured by growing business leveraging and a significant volume of intangibles, which also affects other local peers. Even after considering the effect of the recent capital increase, BdB's Fitch eligible capital ratio (estimated at 8% after the successful public offer of new shares) remains among the lowest for major banks in the region. A still high dependence on hybrid capital, a relatively high dividend payout ratio, and continued growth will continue pressuring this measure of capital quality.

BdB's operational performance has improved since 2007 as a result of higher revenue generation and its credit portfolio expansion in segments with higher margins. This improvement partially compensated for the additional provisioning needed in 2008/2009 in light of significant loan growth in an economic downturn and pressures from the bank's still significant weight in the agribusiness. Profitability should become more in line with peers although pressures on earnings are expected from administrative expenses influenced by consolidation in the near term.

BdB is the largest Brazilian conglomerate and market leader in deposits, credit, foreign trade operations and asset management. In 2008/2009, the bank reached a larger scale through its organic growth and the acquisition of credit portfolios from smaller banks (public payroll deductible loans and auto lending) and capital participations in other financial institutions. Its acquisitions of Nossa Caixa and 50% of Banco Votorantim S.A. were the most relevant, adding to BdB more than BRL100 billion in assets and liabilities.

At the first quarter of 2010 (1Q'10), BdB's assets, credit portfolio and regulatory capital totaled, respectively, BRL725 billion, BRL306 billion, and BRL61.6 billion. Although hybrid capital and subordinated debts have aligned BdB's capital ratios with the local prudential regulations since 2007, the higher leverage and growing business activities reduced its regulatory capital to 13.7% and the Fitch eligible capital ratio fell below 6% at the end of 1Q'10.

In Fitch's opinion, BdB's tight capital base remains a constraint for its long-term development. The capital injection of BRL7 billion in July of 2010, with resources raised through its successful public offer of new shares, will give the bank room to manage its growth in 2010. However, it does not provide a long-term strategic growth plan for beyond 2011. While Fitch recognizes the improvements noted above, the Individual Rating could still come under pressure should the Fitch eligible capital measures return to their pre-offering level.

The main methodology used for these rating actions are outlined in Fitch's reports:

'Global Financial Institutions Rating Criteria' and 'Equity Credit for Hybrids and Other Capital Securities,' dated Dec. 29, 2009, and are available at 'www.fitchratings.com' and 'www.fitchratings.com.br'.

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

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CONTACT:

Fitch Ratings
Peter Shaw, +1-212-908-0553 (New York)
Edgard Dias, +5511 4504 2600 (Sao Paulo)
Maria Rita Goncalves, +5521 4503 2600 (Rio de Janeiro)
Brian Bertsch, +1-212-908-0549 (Media Relations, New York)
brian.bertsch@fitchratings.com

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