(Source: Info-Prod Research (Middle East))Moody's Investors Service downgraded both the long term local currency deposit rating of Mercantil, C.A., Banco Universal (Mercantil) to Ba3, from Ba2, and that of Banco de Venezuela (Banvenez) to Ba2, from Ba1. The outlook is stable for both these ratings. At the same time, Moody's confirmed Banvenez's bank financial strength rating at D-, with a negative outlook. The downgrade of the local currency deposit ratings is driven by the rating agency's reassessment of a government's ability to support its banks during a protracted, systemic event, such as during the ongoing global crisis. The likelihood of such support is an important part of Moody's credit analysis, and it provides uplift to deposit ratings above the floor implied by a banks' own financial strength. The local currency deposit rating downgrades bring both banks' ratings closer in line with that of the Venezuelan government's own B1 local currency bond rating. These rating actions conclude the review for possible downgrade of the deposit ratings initiated on July 1, 2009. Moody's noted that the rating action on Mercantil's deposits does not reflect a change in the bank's intrinsic financial strength. In fact, on July 1, 2009, Moody's had affirmed Mercantil's D- bank financial strength rating and its Ba3 unsupported baseline credit assessment to reflect the adequacy of the bank's balance sheet. The bank financial strength rating measures a bank's intrinsic safety and soundness and, as such, excludes external credit-support elements. Mercantil's Ba3 deposit local currency rating benefits from no uplift due to systemic support. The confirmation of Banvenez's D- bank financial strength rating reflects Moody's view of its potentially enhanced importance in the system, which could result from its intended role as a consolidator of other Venezuelan public sector banks, under the newly created Corporaci?n de la Banca P?blica. However, Moody's believes Banvenez's new role is also likely to result in changes in the bank's risk management and thus its asset allocation, as greater emphasis is placed on executing public policy at the expense of risk- adjusted returns. Over the medium term Bavenez's new public policy role may have a negative effect on the bank's financial metrics, Moody's said -- particularly asset quality, profitability and capitalization -- which it assesses in its analysis of a bank's intrinsic financial strength. The rating agency therefore has assigned a negative outlook to Banvenez's financial strength rating, indicating that it would monitor the bank's financial fundamentals closely during the next several quarters.