Though Moody’s Investors Service recently downgraded two state-run Brazilian banks, the credit ratings firm maintained government-controlled Banco do Brasil’s credit rating at A3, citing a stronger capital structure.
“There is no reason to change Banco do Brasil’s rating at the present time,” Alexandre Albuquerque, the assistant vice president for analysis at Moody’s, said, according to Fox Business. “The bank’s policy of building its capital base is different from that of its state-run peers.”
On Wednesday, Moody’s downgraded the ratings of two other banks, including the National Development Bank known as BNDES and Caixa Economica Federal, referred to as CEF. Moody’s said that the banks’ capital structure has been weakened by the government as it attempts to spur economic activity.
“BNDES and Caixa are wholly-owned by the Brazilian government, and they have been engaged in supporting the government’s countercyclical economic policies, which has resulted in significant growth rates of assets and loans and leaner capital ratios,” Moody’s said, Fox Business reports.
CEF operates as a commercial bank and provides credit products—mortgages in particular—to individuals, while BNDES provides corporate financing and infrastructure financing. The two banks have together received nearly $16 billion from the Brazilian government in the form of shares in state-run firms.
“The government has required BNDES and Caixa to contribute an increasing amount of dividends, while it replenishes the banks’ capital with non-cash capital injections,” Moody’s said, according to Fox Business. “This practice has resulted in relatively low core capital levels, which limits the banks’ ability to absorb losses in situations of stress, thus weakening their stand-alone credit strength.”