Moody's downgraded the Brazilian lender Banco Paulista's long-term local and foreign currency deposits ratings to B2 from B1, according to a release by the ratings agency.
Moody's also downgraded Paulista's long-term Brazilian national scale rating to Baa3 from Baa2 and affirmed the lender's bank financial strength rating of E+.
The ratings action reflects the bank's increasing focus on foreign exchange services and accompanying shift away from commercial lending, which has resulted in increasing earnings dependence on a single business line, said the agency.
This niche foreign exchange activity is based on importing Brazilian reais, which involves significant operational and compliance risks that are difficult to predict.
Additionally, the potential for growth in the segment is limited due to Paulista's large share of the market, said Moody's.