OREANDA-NEWS. S&P Global Ratings affirmed its 'BB/B' foreign currency and local currency ratings on Caixa Economica Federal (Caixa). At the same time, we affirmed our 'brAA-/brA-1' national scale ratings on the bank. The negative outlook is based on our outlook on Brazil, and we expect the ratings on the bank to move in tandem with those on the sovereign. The bank's stand-alone credit profile (SACP) is 'bb'.

The global scale foreign and local currency ratings on Caixa are the same as the sovereign ratings on Brazil and reflects our view of an almost certain likelihood of extraordinary government support if needed. Though the SACP has no impact on the issuer credit rating because of the almost certain likelihood of government support, we believe that the bank has an adequate business position, weak capital and earnings, moderate risk position, above average funding and strong liquidity, leading to an SACP of 'bb'.

The negative outlook reflects our view that our ratings on Caixa should move in tandem with the sovereign, and there is a greater than one–in–three likelihood that we could lower the ratings on Brazil again.

We anticipate that within the next year a downgrade could stem, in particular, from potential key policy reversals given the fluid political dynamics in Brazil, including lack of cohesion within the cabinet, inconsistent policy initiatives, and uncertainties during or following the impeachment process. A downgrade could also result from greater economic turmoil than we currently expect either due to governability issues or the weakened external environment.

We could revise the outlook to stable, and the ratings could stabilize, if Brazil's political uncertainties and conditions for consistent policy execution were to improve across branches of government, stanching fiscal deterioration and strengthening GDP growth prospects. We expect that these improvements would support a quicker turnaround and could help Brazil exit from the current recession, facilitating improved fiscal performance and providing more room to maneuver in the face of economic shocks.