Moody's on Dec. 20 downgraded the long-term global local currency issuer rating of CCB Brasil Arrendamento Mercantil SA, or CCB Leasing, to Ba1 from Baa3, while affirming the long-term Brazilian national scale issuer rating at Aaa.br.
The outlook on the company's ratings remains negative.
The downgrade follows the downgrade to parent company China Construction Bank (Brasil) Banco Múltiplo SA, or CCB Brasil, which reflects the bank's ongoing net losses that continue to deplete bank capital. Moody's noted that the bank's net losses in the first half of 2016 were about 27% higher than a year earlier, mainly due to credit costs. The bank's revenue generation has also been pressured by a shrinking loan portfolio, which fell 41% over the last two years, the rating agency added.
The negative outlook on CCB Leasing reflects the negative outlook on CCB Brasil, in turn reflecting the risk that the bank's earnings will remain negative and its capitalization will continue to fall as it realigns its strategic focus amid Brazil's adverse business environment.
But while CCB Brasil's outstanding problem loans are still high as a percentage of total loans, Moody's noted that the risk profile of its loan portfolio is shifting materially as management has worked to reduce the bank's exposure to higher-risk small and medium-sized companies and focus on high-quality corporate borrowers.
Moody's believes both CCB Leasing and CCB Brasil have a very high probability of affiliate support from ultimate parent China Construction Bank Corp.