Moody's on July 15 placed several of Banco do Estado do Rio Grande do Sul SA's ratings on reviewfor downgrade, citing the potential impact of the bank's plans to take on payrollservices for state employees.
The ratings included in the review include Banrisul's Ba2 long-termglobal rating, Aa3.br national scale local-currency deposit rating and Ba3 foreigncurrency subordinated debt rating. The rating agency also placed onreview for downgrade the bank's baseline credit assessment of "ba2" andits long-term counterparty risk assessment of Ba1(cr).
The bank's other ratings were not affected by the action.
Moody's said that its review will consider the precise impactthat the bank's agreement to providepayroll services for state employees will have on capitalization levels and recurringprofitability in the context of its increasing asset risk. "The review willalso consider the probability that the bank will be able to replenish at least someportion of this reduction in capital over the coming quarters, together with theprospects for its asset quality," the rating agency said.
The bank's move is expected to lead to a substantial fall inthe ratio of tangible common equity to risk weighted assets, as well as lower netincome, Moody's said.