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Fitch holds Banco Original on negative watch, lowers long-term national rating

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Fitch holds Banco Original on negative watch, lowers long-term national rating

Fitch Ratings on Dec. 15 maintained Banco Original SA's issuer default ratings, viability rating and national ratings on Rating Watch Negative, while downgrading its long-term national rating to BBB(bra) from BBB+(bra).

The rating agency kept the bank on Negative Watch due to lower but still possible contagion risks from events surrounding the bank's sister unit, meatpacking company JBS SA. The firms' owners have been accused of paying out bribes that were used as campaign donations by Brazil's past and present presidents.

According to Fitch, ongoing investigations continue to create uncertainty, especially because ordinary shareholder support has been vital in keeping the bank's bottom-line profitability at adequate levels. The bank also has to fully restore refinancing capacity and maintain funding costs at historical levels in order for Fitch to resolve the Negative Watch placement.

Meanwhile, the downgrade of the national rating reflects the bank's relative weakened position locally, due to significant pressures on profitability and asset quality since 2016. These pressures have impaired the bank's ability to achieve sufficient and recurrent earnings, Fitch said.

The bank currently holds B+ long- and B short-term foreign and local currency issuer default ratings, "b+" viability rating and F2(bra) short-term national rating.

The ratings reflect the bank's still-weak and below-average earnings profile, which have underperformed relative to Fitch's initial expectations. Under these conditions, ordinary support from its owner through asset sales in 2016 and 2017 was necessary, Fitch said.