Moody's downgrades eight Brazilian banks Moody's has downgraded eight Brazilian banks and the country's stock exchange operator as part of its global review of the sector, highlighting the vulnerability of emerging markets to the crisis in the eurozone. The rating agency said late on Wednesday that it had reduced the so-called standalone bank financial strength ratings of eight financial institutions by one to three notches, mostly bringing them in line with Brazil's sovereign rating. IN Americas Finance Votorantim, the Brazilian bank that is heavily exposed to the struggling car sector, was lowered below the country's Baa2 rating due to the lender's "poor financial performance" and "prospects of ongoing challenges to its financial strength," Moody's said. While Brazil's banking system is considered one of the sturdiest in the world after surviving decades of internal crises, some of the country's smaller lenders have been hit by a funding squeeze recently and rising defaults as the economy slowed. The country's larger banks are also facing lower returns on equity due to tighter interest rate spreads and slower credit expansion. Moody's on Wednesday also downgraded the long-term global local currency deposit ratings or issuer ratings of 11 financial institutions, some of which are part of the same larger banking group. In total, Moody's ratings actions affected the Brazilian subsidiaries of Spain's Santander, HSBC and ING, as well as the local lenders Bradesco, Banco do Brasil, Itaú-Unibanco, Banco Safra, Votorantim and the exchange operator BM&FBovespa. "Our review indicated that there are little, if any reasons to believe that these banks would be insulated from a government debt crisis," wrote Ceres Lisboa, analyst at Moody's Investors Service in São Paulo. "More particularly, we note their significant direct exposure to the Brazilian government securities, equivalent to 167 per cent of tier one capital," she said. Brazil's economic growth has slowed sharply from 7.5 per cent in 2010 to 2.7 per cent last year, with some analysts predicting even lower growth this year in Latin America's biggest economy.