Moody's on May 24 lowered the long-term national scale deposit rating of Banco Mercantil do Brasil SA to Caa1.br from B3.br, while placing all the bank's long-term ratings and assessments on review for downgrade.
The bank's ratings and assessments included in the review for downgrade are its Caa1 long-term local and foreign currency deposit ratings, (P)Caa1 long-term foreign-currency senior unsecured medium-term note program rating, Caa2 long-term foreign currency subordinated debt rating, caa1 baseline credit assessment and adjusted baseline credit assessment, as well as its B3(cr) long-term counterparty risk assessments. Moody's also placed the bank's long-term national scale deposit ratings on review for further downgrade.
The bank's short-term ratings were not impacted by the action.
Moody's action on the bank reflects rising challenges in the bank's generation of sustainable profitability and internal capital generation, of which the latter would anchor the bank for upcoming Basel III requirements in January 2019.
With the Brazilian central bank recently rejecting the bank's proposed capital increase of 60 million reais, the review will look into Banco Mercantil do Brasil's capacity to raise its profitability and capital, Moody's said. The central bank cited a lack of documentation and said that certain formalities weren't met when it rejected the bank's capital increase proposal earlier this month.
Moody's said additional rationale for its ratings is that the bank reported still-weak asset quality and profitability trends in the first quarter, despite slightly improving from 2017 ratios due to lower funding, provisioning and operating costs.
As of May 23, US$1 was equivalent to 3.64 Brazilian reais.
