S&P Assigns 'BB-' FC, 'BB+' LC To Banco do Nordeste.

NEW YORK--(BUSINESS WIRE)--Standard & Poor's CreditWire 7/10/98-- Standard & Poor's today assigned its double-'B'-minus long-term foreign currency counterparty credit rating to Banco do Nordeste do Brasil S.A. (BNB). At the same time, Standard & Poor's assigned its double-'B'-plus long-term local currency counterparty rating to the bank. The outlook is stable. The double-'B'-minus foreign currency rating is also assigned to the US$340 million of debt outstanding. Additionally, Standard & Poor's assigned its single-'B' short-term foreign currency and its single 'B' short-term local currency credit ratings to the bank.

The ratings are constrained by:

-- Weak asset quality and capitalization that undermine the bank's

solvency absent sovereign support.

-- The absence of a timely government guarantee on BNB obligations,

given that Brazilian law prohibits bankruptcy proceedings 

against BNB provided that the federal government remains the

controlling shareholder. Although the law allows BNB's creditors to

seek payment from the government after obtaining a final judgment

against BNB, the litigation process could significantly delay

payments to creditors.

-- BNB's lesser importance to the government's public policy compared

with larger Brazilian public financial institutions. In the

long-run, potential shifts in economic policy could reduce BNB's

public policy role and, in turn, its sovereign support.

The ratings are supported by:

-- The Brazilian government's demonstrated commitment to support

BNB. The government holds 83% of the voting shares of the bank and

closely controls management of the bank's operations. Strong

sovereign support is also evidenced by the government's funding and

capitalization policies with respect to BNB, including the recent

US$170 million capital increase (with an additional US$90 million

already authorized and expected to be released by year-end) and

rising deposits by government agencies. The government also extends

guarantees for BNB's largest loans and issues special regulations

for loan loss provisioning.

-- The bank's key public policy role in the Northeast region of

Brazil -- home to over 30% of Brazilians and given the region's weak

social indicators, with GDP per capita of only half of Brazil's

average. BNB is the sole provider of long-term financing to the

industrial and agriculture sectors in many Northeast states and in

some states it is responsible for 70%-95% of the total lending by

the financial system.

-- The bank's steady liquidity inflow, supported by constitutionally

mandated monthly transfers of 1.8% of the total collected federal

income tax (IR), industrial product taxes (IPI), and transfers and

deposits by other public institutions.

-- A favorable liability structure, with 79% of BNB's funding

being long-term. The mismatches of assets and liabilities regarding

both maturity and currency risk are minimal. Exchange rate risk is

mitigated by indexing the matching assets in local currency to the

exchange rate. However, indirect exchange rate exposure is present,

since only a part of these assets are either hedged or placed with

exporters.

BNB's local currency rating -- on par with the sovereign -- reflects the bank's heavy funding dependence on the sovereign, which is constitutionally mandated. Earmarked transfers of federal tax receipts, which account for 53% of the bank's funding base, support the bank's liquidity position and creditworthiness equal to that of the sovereign.

OUTLOOK: STABLE

Continued government support, given BNB's key public policy function in the Northeast region, is expected to offset periodic pressures on BNB's asset quality and permit, at present, the bank's creditworthiness to mirror that of the Republic of Brazil, said Standard & Poor's.---CreditWire.

CONTACT: Alexei Remizov, New York (1) 212/208-5425

Jose R. Tora, New York (1) 212/208-8222

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