OREANDA-NEWS. Moody's Investors Service has affirmed Banco Indusval S.A (BI&P)'s D- (D minus) bank financial strength rating (BFSR), as well as the global local and foreign currency deposit ratings of Ba3 and Not Prime, long and short term respectively. At the same time, Moody's affirmed BI&P's long and shortterm deposit ratings ofA2.br and BR-2 in the Brazilian national scale. The outlook remains stable for all ratings.

The following ratings assigned to Banco Indusval were affirmed:

Bank financial strength rating of D-, stable outlook

Long term global local currency deposit rating of Ba3, stable outlook

Short term global local currency deposit rating of Not Prime

Long term global foreign currency deposit rating of Ba3, stable outlook

Short term global foreign currency deposit rating of Not Prime

Long term national scale local currency deposit rating ofA2.br, stable outlook

Short term national scale local currency deposit rating of BR-2

RATINGS RATIONALE

In affirming the ratings, Moody's acknowledged BI&P's strategic business repositioning into the segment of upper middle and small-medium size companies over the past two years, as well as its efforts to improve credit quality and standards. Private equity firm Warburg Pincus as a new shareholder in early 2011 also strengthened the bank's capitalization.

Moody's noted, however, that the new business model has yet to prove sustainable under the challenging funding and profitability environment for midsize banks in Brazil. Following the completion of the 2012 restructuring, management is now challenged to strengthen the bank's small franchise by integrating new business activities that include investment banking and agribusiness, while maintaining disciplined risk guidelines and enhancing earnings recurrence and thus, capitalization.

Over the past 18 months, BI&P's performance has slightly improved, but its limited balance sheet and high credit and operating costs still result in modest earnings, an indication of the business transition. Moreover, large credit and funding concentrations relative to Tier 1 capital and core earnings remain a source of volatility.

Moody's noted that upward pressure on the standalone ratings would depend on the sustainability of earnings and asset quality, adequate capital levels to support further loan growth, and funding diversification away from expensive short-term wholesale deposits that accounted for roughly 74% of the bank's total funding as of Q3 2012. In that regard, Moody's will monitor BI&P's efforts to develop alternative lines of business and cross-selling activities, which will allow it to build a more robust balance sheet.

BI&P's Ba3 local currency deposit rating does not incorporate any lift from systemic support because of the bank's modest deposit position that has a very limited share of the national banking system's total deposits.

The last rating action on Banco Indusval was on November 25, 2010, when Moody's first assigned ratings to the bank with a stable outlook.