Moody\'s Investors Service\'s ratings for the
major Brazilian banks have stable outlooks, according to its annual
report on the nation\'s banking system. According to the report, the
ratings are underpinned by the banks\' broad and diversified franchises
and by a resilient credit expansion cycle, which have ensured that
earnings generation is largely recurrent and sustainable. The report
also cites some concerns, which involve tighter capital ratios, harsher
competition, the effects of a low interest-rate environment, and the
potential for asset quality erosion under rapid loan expansion.

The major bank segment holds an average bank financial strength rating
(BFSR) of C+; the average BFSR for all rated Brazilian banks is C. The
ratings of most Brazilian banks have recently been upgraded as a result
of the implementation of Moody\'s Revised Global Bank Financial Strength
Rating methodology, in conjunction with the incorporation of Joint
Default Analysis into the BFSR methodology. Recently, Moody\'s has also
upgraded Brazil\'s foreign-currency deposit ceiling to Ba2, from Ba3, and
foreign-currency bond ceiling to Baa3/Prime-3, from Ba1/Not Prime. As a
result of the sovereign action Moody\'s upgraded the long-term
foreign-currency bank deposit ratings of selected banks to Ba2, from
Ba3, as well as the foreign currency bond ratings of certain banks.

According to the report\'s author, Celina Vansetti Hutchins, \"the
operating performance of the major banks has been characterized by high
profitability, improving cost efficiency, and stable, though high,
delinquency ratios. \"Such financial fundamentals have benefited capital
accumulation over time,\" she says, \"resulting in a pool of solid banks,
each of which is well positioned to operate in a more stable and
competitive economic environment.\"

The analyst adds that \"the major banks\' disciplined risk management,
together with adequate pricing and risk monitoring tools, should also
support further growth of their balance sheets.\"

\"As real income in Brazil continues to grow -- largely as a result of
supportive domestic demand and labor markets -- consumer credit growth
seems sustainable, thus increasing opportunities for banking services,\"
Ms. Vansetti Hutchins states, \"investments and corporate lending should
also be boosted by favorable macro conditions and economic growth, along
with increasing capital markets activity.\"

\"That said,\" Ms. Vansetti Hutchins explains, \"these banks have
experienced gradual tightening of capital ratios and weakening of asset
quality indicators as their loan portfolios grow and season.\" Reserve
coverage remains high, but credit costs are increasing relative to core
earnings -- a trend also observed in Mexico and Chile.

Ms. Vansetti Hutchins believes that \"an environment of sustained low
interest rates is set to challenge Brazilian banks, with competition
further altering the system\'s profitability dynamics.\" \"Managements,
therefore, will need to deploy their domestic expertise while maximizing
capital resources and allocation to defend and, especially, to advance
their respective market positions.\"

The report is titled: \"Banking System Outlook 2007: Brazil, Major
Brazilian Banks\".