NEW YORK & SAO PAULO--(BUSINESS WIRE)-- Fitch Ratings has removed the Rating Watch Negative on the ratings of Banco KDB do Brasil S.A. (KDBbra). At the same time, Fitch has affirmed and withdrawn the following ratings as indicated:

--Support Rating at '2';

--Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BBB'; Outlook Stable; withdrawn;

--Short-term foreign and local currency IDR at 'F3'; withdrawn;

--Individual Rating at 'E'; withdrawn;

--National long-term rating at 'AAA(bra)'; Outlook Stable;

--National short-term rating at 'F1+(bra)'.

These rating actions reflect the USD60 million capital contribution in March 2010 when the controlling shareholder settled KDBbra's capital ratio as per local regulations, showing its willingness to support the Brazilian subsidiary. The ratio had been well below the 11% minimum limit since the end of 2008, having reached 6.7% in September 2009 due to accumulated losses. So as to temporarily adjust such capital ratio, in December 2009 KDBbra acquired, and linked to the Central Bank of Brazil (Bacen), BRL67 million in federal securities, considered as capital for regulatory purposes.

The IDRs and National Ratings of KDBbra are based on the support of its controlling shareholder, Korea Development Bank (KDB; IDR 'A+' with a Stable Outlook). The Individual Rating reflects a still limited franchise, a strong reliance on the parent for business development, as shown in the recent capitalization process, and the potential risk involved in its private securities portfolio. KDB is a development bank owned by the government of South Korea, which provides full support to KDBbra through a 'solvency guarantee', expressed constitutionally by Article 44 of the KDB Act. The South Korean government has plans to privatize KDB by May 2014. Should this occur, Fitch would review the possible effects on KDB's ratings.

The bank's results have been weak, with a strong loss in 2009, basically as a result of negative adjustments at market value and provisioning for losses around BRL50 million for bank credit bills (CCBs) and receivables investment funds (FIDCs). However, according to the bank, additional adjustments should be necessary in 2010, still impacting the result, although in a lower volume.

KDBbra's ratings are linked to its parent's ratings, as well as to its willingness to support the bank. The Individual Rating would benefit from higher capitalization and lower exposure to private securities, which would enable consistent operating results.

KDBbra, established in 2005, is a wholly owned subsidiary of KDB (assets at USD129 billion and equity at USD14 billion in June 2009), dedicated to treasury activities and to the financing of South Korean companies in Brazil.

The main methodologies used for this rating action were 'Global Financial Institutions Rating Criteria', dated Dec. 29, 2009; and 'National Ratings - Methodology Update', dated Dec. 18, 2006, both available at 'www.fitchratings.com' and 'www.fitchratings.com.br'.

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

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