Brazil’s State Run Banks Getting Tapped Out

Kenneth Rapoza – Forbes, 01/31/2016

Brazil’s public banks are the only game in town. Not only do they have subsidized rates they can offer home owners and small business, but they are the only banks in Brazil willing to take on risk. Last year, 56% of credit circulating nationwide was from the public sector banks. That’s up from 34% six years ago. The problem is that these banks are getting stretched out and will not be able to offer as much credit this year.

“The situation for capital at state banks is very tight. They cannot do a lot of anti-cyclical moves at the moment,” an executive at one of the banks told Estado de Sao Paulo newspaper on Sunday. “Either the Central Bank injects capital or Brazil breaks with the Basil accords.”

Brazil is still a ways away from being a risky lender, however.The Basil agreement among world banks, pushed forward after the Great Recession in order to avoid a global banking meltdown, requires signatories to hold between 7% and 9.5% in cash in relation to its credit portfolio.

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Analysis – Brazil’s BNDES in spotlight as Rousseff faces fiscal pressure

Guillermo Parra-Bernal – Reuters, 11/3/2014

For decades, Brazilian companies large and small have been hooked on cheap credit from state development bank BNDES.

That reliance weakens public finances and squeezes private banks out of credit markets. Critics say that instead of forcing them to kick the habit, President Dilma Rousseff has plowed more and more money into BNDES since taking office in 2011.

With the economy now stagnant, she faces pressure to clean up the budget and reduce state intervention in the economy. In the first nine months of this year, Brazil’s government spent more than it raised even before debt payments, its first primary budget deficit since 1994. Credit rating agencies warn they could downgrade Brazil as early as next year and are closely looking at whether a smaller role for BNDES will be among Rousseff’s policy shifts in her second term, which begins in January.

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Brazil to boost credit to counter economic slowdown

Walter Brandimarte – Reuters, 7/25/2014

Brazil’s central bank on Friday announced measures to boost credit in the country’s ailing economy, one week after keeping its benchmark interest rate at its highest level in over two years to fight inflation.

The bank said in a statement it was freeing up an estimated 30 billion reais ($13.5 billion) in the financial system through changes to banks’ reserve requirements.

The move “aims at improving the distribution of liquidity in the economy” given a recent slowdown in credit and relatively low levels of bad loans, the bank said.

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Brazil’s Central Bank may change currency program to manage currency’s value

Paulo Trevisani – The Wall Street Journal, 5/7/2014

The Brazilian central bank may be about to change its currency policy widely credited with stabilizing the exchange rate during last year’s turmoil in emerging markets, according to market observers.

Since October 2013 the bank has been holding pre-announced auctions of futures contracts to provide a way out for investors in case their bets on the Brazilian real went sour.

The idea was to offer predictable hedge options, so investors would be less afraid of holding the local currency at a time when the Federal Reserve was mulling a wind down of the bond-buying policy that beefed up emerging-market currencies for years.

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A legal hazard for Brazil’s banks: the past is epilogue

The Economist, 4/8/2014

“IN BRAZIL,” Pedro Malan, a former finance minister, likes to say, “even the past is unpredictable.” The dictum has come to haunt Itaú Unibanco, the advisory board of which Mr Malan chairs. The bank, along with Banco do Brasil and Spain’s Santander, awaits judgment by the supreme court over its actions a quarter of a century ago. Depositors claim the trio’s subsidiaries took advantage of government efforts to quash hyperinflation to fleece owners of inflation-linked accounts. If the justices side with depositors, other lenders that offered similar instruments may also be on the hook. The bill could reach 150 billion reais ($62 billion), according to the central bank.

The finance minister, Guido Mantega, and the central bank’s governor, Alexandre Tombini, have signed an open letter warning that a defeat for the banks may starve the economy of credit. (So did all their living predecessors, regardless of political or economic persuasion.) Such a decision might also prompt Banco do Brasil and Caixa Econômica Federal, which are state-controlled and between them hold roughly half of all savings accounts, to seek a government bail-out, denting Brazil’s already fragile public finances.

Walter Faiad of the Consumer Protection Institute, an outfit involved with the savers’ claims, argues that banks would lose closer to 15 billion reais, mainly because relatively few of their former depositors have the will and resources to go to court. Murilo Portugal, head of the Federation of Brazilian Banks (Febraban), which co-ordinates the industry’s legal strategy, counters that between 2005 and 2013, as the 20-year statute of limitations drew near, banks received as many as 1.4m claims. And the court may interpret some pending class actions brought by public prosecutors as representing all of the tens of millions of Brazilians who held a savings account at the time.

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Brazil’s BNDES needs capital to meet record disbursements

Reuters, 08/14/2013

Brazil’s state development bank said on Wednesday it needs more capital to fund record loan disbursements this year, a sign the government still favors using state lenders to kick-start economic growth regardless of fiscal consequences.

In order to fund a projected surge of 22 percent in loan disbursements, the Rio de Janeiro-based development bank, BNDES , may ask the national treasury, its largest shareholder, for a capital injection or borrow money in domestic debt markets in the fourth quarter, bank president Luciano Coutinho said.

Disbursements at BNDES are seen between 185 billion reais and 190 billion reais ($80 billion and $82 billion) this year, compared with 156 billion reais in 2012. BNDES, whose loan book is almost three times the size of the World Bank’s, could slow disbursements should the Brazilian economy show more robust signs of a recovery in 2014, Coutinho said.

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Moody’s may remove Brazil “positive” outlook as growth lags

Alonso Soto- Reuters, 06/18/2013

Moody’s Investor Service says it will become more difficult to justify its “positive” outlook on Brazil’s investment-grade credit rating if the country remains in the grip of weak economic growth and its debt burden fails to decline, a senior official from the ratings agency said.

Moody’s is paying close attention to trends in the country’s debt-to-gross domestic product ratio and potential growth dynamics now that the economy risks posting a third straight year of sub-par growth, senior credit officer Mauro Leos said in a telephone interview on Monday.

“The focus is on growth and fiscal policy,” Leos said. “If there are indications that the debt-to-GDP ratio may not continue to decline as it has been the case, based on recent numbers, then it will be more difficult to support the contention that the outlook is positive.”

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Brazil: Itaú expands credit card business

Samantha Pearson – Financial Times, 06/18/2013

No rest for Brazil’s biggest bank, Itaú Unibanco, it seems.

The lender announced late on Monday its $307m acquisition of a 51 per cent stake in Chilean retailer Cencosud’s credit card business in Chile and Argentina.

Itaú, which ranks as Brazil’s largest bank by market value, said it would provide funding for all of the business’s credit card loans in both countries, totalling $1.3bn.

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Moody’s sees risks in Brazil’s Caixa new lending program

Rogerio Jelmayer – The Wall Street Journal, 06/17/2013

The new lending program by Brazil’s state run bank Caixa Economica Federal to provide credits for low-income families to buy furniture and appliances will increase banks’ credit risks, said the rating agency Moody’s Investors Service.

“The provisional measure is credit negative for Caixa because it will further increase its credit risk exposure to low-income borrowers who will finance these purchases at subsidized interest rates for long tenors,” Moody’s said.

Last week, Brazil’s President Dilma Rousseff announced a special credit program for low-income families called the Minha Casa Melhor (My Home, Improved) program that will distribute credit cards with a 5,000 Brazilian reais ($2,344) credit-limit, specifically to buy furniture and appliances for homes bought under the government’s affordable-housing program, Minha Casa, Minha Vida (My Home, My Life).

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Death of structured notes signaled by tax removal: Brazil credit

Alastair Marsh – Bloomberg, 06/17/2013

Brazilian Finance Minister Guido Mantega is making obsolete the world’s most-popular market for structured notes tied to bonds.

Sales of the Brazilian notes, which package bank bonds with derivatives to allow foreign investors to replicate the nation’s higher-yielding real debt while avoiding a 6 percent tax, have plummeted to $40 million in June, 97 percent less than last month’s tally. Issuance is now on pace to be the lowest since September 2011 after Mantega scrapped the so-called IOF tax June 5. Banks led by Barclays Plc had sold a record $7.3 billion of the structured notes this year, 12 times more than debt from South Korea, the second-most-popular reference country.

Investors will likely turn to Brazilian local bonds, with yields that are five times higher than U.S. Treasuries, causing demand for structured notes to dry up, Citigroup Inc. and BNP Paribas SA (BNP) said. Brazil, which adopted the tax on foreigners to limit gains in the real in 2010, removed it after the currency sank 6.5 percent in May on concern the Federal Reserve may curb stimulus. Real-linked bonds sold overseas, which also let investors avoid the tax, have posted a record plunge.

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