Brazil: Fitch Upgrs Banco Rural's Nat'l Scale L-T Rtg; Outlook Changed to Stable, From Evolving.

Business Editors

NEW YORK & SAO PAULO, Brazil--(BUSINESS WIRE)--April 17, 2002

Fitch Ratings, the international rating agency, has upgraded the national scale long-term rating of Banco Rural (Rural) to 'BBB(bra)' from 'BBB-(bra)' and at the same time changed the long-term rating outlook to Stable, from Evolving. The national scale short-term rating of 'F3(bra)' and Support rating of '5T' were affirmed.

In 2001, Rural decided to replace its auditors, formerly a regional firm, with a large renowned international company. During that year, Rural also underwent a full Central Bank routine inspection. Together with these, Rural raised the provisions for a fiscal penalty by an additional BRL 30 mln (directly charged against equity) and adopted a more conservative stance in loan classification according to Resolution 2682, enhancing loan loss provisions by a further BRL 20 mln. Several other provisions were constituted during that year (BRL 10 mln at the bank and BRL 6 mln in subsidiaries). In January 2002, the Brazilian tax authorities reduced the fiscal penalty from BRL 201 mln to BRL 71 mln. Rural, which had provisioned a total of BRL 55 mln for that penalty, paid BRL 35 mln and decided to contest the remaining amount at Tax-payers Council (Conselho de Contribuintes); the balance of the amount provisioned was then reverted during 1Q2002. Therefore, Fitch Ratings has changed the long-term rating outlook to Stable, from Evolving.

Fitch Ratings views all these events positively, strengthening the bank's financials. Together with the consistent track-record of good operating results, the agency decided to raise Rural's national scale long-term rating. Rural's national ratings reflect its expertise in its market segment, a good track record of operating results and its close relationship with clients. However, they also reflect Rural's aggressive profile in a sector with inherently higher credit risk and susceptibility to adverse changes in the economy, as well as its niche-bank profile.

Rural's operating results derive primarily from good financial margins, wider than its peers. 2001 was characterized by high provisioning needs and costs related to the branch network expansion project; conversely, the results benefited from the recognition/activation of some BRL 42.5 mln in tax credits. Nevertheless, Rural's performance remained superior to that of its peers.

Rural, a multiple bank established in 1948, has traditionally lent to small and medium-sized companies. Rural has its head office in the state of Minas Gerais, and 109 outlets (78 branches) throughout Brazil. Overseas, Rural has a presence in Uruguay, the Bahamas, Madeira, and, not linked to the bank, also in Miami. Mr. Sabino Rabello controls the bank with 84.7% of the voting stock. The Rural Group is in the process of divesting non-financial interests and minor participations were transferred to the bank, not impacting results.

Note to Editors:

Fitch's Support and Individual Ratings for Banks: Fitch's Individual ratings assess how a bank would be viewed if it were entirely independent and could not rely on external support. Its Support ratings deal with the question of whether a bank would receive support from its owners or from the state if it were to get into difficulty. These ratings are not debt ratings but rather, respectively, an assessment of the intrinsic strength of a bank and of any level of outside support that may, or may not, be available to it. A Support rating qualified by the suffix 'T' indicates significant existing or potential transfer risk of economic and/or political origin that might prevent support for foreign currency creditors.

Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries where the sovereign's foreign and local currency ratings are below 'AAA'. National ratings are not internationally comparable since the best relative risk within a country is rated 'AAA' and other credits are rated only relative to this risk. They are signified by the addition of an identifier, for the country concerned, such as 'AAA (bra)' for national ratings in Brazil.