S&P lowers Banco do Brasil

Standard & Poor's said it lowered its rating on Banco do Brasil SA's (BBB-/stable/A-3) perpetual unsecured junior subordinated non-cumulative hybrid equity instruments to B+ from BB- as it expects the bank's principal capital trigger to remain below 301 basis points of its risk weighted assets over the next 18 months to two years.

The bank's principal capital has fallen following Brazilian central bank's mandate for stricter capital requirements as part of Basel III implementation, which began in October 2013. As of March, Banco do Brasil's principal capital ratio fell to 7.8% from 8.2% at year-end 2013.

Consequently, S&P said the buffer to the write-down trigger of the equity instruments fell below 301 bps. The trigger is 5.125%. Considering the agency's forecast for the bank's growth and profitability, and more strict capital requirements, S&P doesn't expect Banco do Brasil's principal capital to recover in the next 18 to 24 months.

In S&P's view, this increases the risk of write-down on these equity instruments.

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