KBRA Affirms Ratings for Bradesco Bank

KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for Coral Gables, Florida based Bradesco Bank (“Bradesco”) (“the bank”). The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The ratings are supported by the bank’s peer leading capital ratios including a CET1 ratio of 17.1% at YE24. As a privately held subsidiary of publicly traded, Brazilian based, Banco Bradesco S.A. (NYSE: BBD), the bank’s critical presence in the U.S. affords it access to capital from its parent, which is regarded as a key strength. As part of its prudent capital management strategy, Bradesco aims to maintain capital levels above rated peer averages. While the loan portfolio exhibits concentration risk particularly from 1-4 family loans in Florida, which account for over 50% of total loans as well as risks within the C&IB portfolio related to sovereign exposure and single name concentrations, these risks are viewed as partially mitigated by the bank’s elevated capital levels and its proactive risk management framework. This is evidenced by consistently strong asset quality metrics over multiple years, including limited credit costs and the realization of net recoveries in each of the last four years.

Strong balance sheet growth momentum with assets surpassing $5 billion with a five-year CAGR of 20% drove a moderate improvement in earnings through improved operating efficiencies (noninterest expenses were less than 2.0% of average assets in 2024). On a relative basis, the bank’s ROA continues to track below peer averages, though adjusting for risk-weighting, Bradesco’s earnings have trended more in line with peers in recent periods (Bradesco benefits from its concentration in 1-4 family loans which receive a 50% risk-weighting). A robust 17% year-over-year organic growth in wealth management AUC which reached $3.4 billion as of 4Q24, underscores the sustainability of this revenue stream. Despite the growth in wealth management income, fee income was relatively flat in 2024 (excluding the $4.4 million COVID related employee retention tax credit reported in 2023). Bradesco’s unique operating model anchored in deposit generation through its private banking, wealth management and C&IB segments contributes to a comparatively less granular and higher cost funding base with an elevated reliance on brokered deposits (17% of total deposits at 4Q24). Furthermore, while KBRA recognizes certain sovereign risks associated with its funding base, Bradesco has experienced limited funding volatility including following the high-profile bank failures in 2023 when the bank reported minimal runoff.

Rating Sensitivities

A focus on diversification within the loan portfolio and its revenue mix, with fee income tracking more in line with higher rated peers (on an average asset basis), coupled with improved funding profile with less reliance on more volatile sources of funding, stable asset quality, and continued management of above-average capital ratios, could result in positive rating momentum over time. A significant shift in the bank’s risk profile resulting in material degradation of credit combined with a weaker funding profile impacting profitability or a shift to aggressive capital management impacting related ratios to levels tracking closer to or below peers could result in rating pressure.

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Methodologies