Moody's sees shift in Brazil state bank policy unlikely
SAO PAULO Oct 1 (Reuters) - Brazil's government is unlikely to make good on promises to rein in aggressive lending growth by state-run banks because it could hamper support for the ruling party in next year's presidential election, a senior Moody's Investors Service analyst said on Tuesday.
The ability of President Dilma Rousseff's government to phase out a five-year-long strategy to use government-controlled lenders to boost credit access and cut borrowing costs for consumers and small companies will suffer as the election campaign looms, Ceres Lisboa, who analyzes Brazilian financial institutions for Moody's, said in Sao Paulo.
In March, Moody's cut the long-term issuer ratings of state development bank BNDES and Caixa Economica Federal, Brazil's No. 1 mortgage lender, citing their eroding capital position after years of rapid credit expansion. At the same time, BNDES and Caixa increased dividend payouts to the government, which has in turn replenished their capital with Treasury debt instead of cash.
"The money the government raised was funneled into state banks as debt, making the banks' capital structure more vulnerable," Lisboa said at an event sponsored by Moody's. "The government rhetoric is positive, but, in practical terms, a policy shift may be a little difficult."
In recent weeks, government officials acknowledged the need to put the brakes on state-run lenders - which are growing their loan books at a pace five times faster than their private-sector rivals. Moody's March decision to downgrade the banks reflected the growing concern among investors over Brazil's increased use of state lenders to revive growth regardless of the strategy's fiscal consequences.
State banks, which now account for more than half of all outstanding loans in Brazil, have ventured into riskier credit markets such as consumer, auto and small-sized corporate lending - areas that private-sector lenders are shunning in the wake of still-high defaults. Limiting borrower access to state lenders could risk alienating voters, Lisboa suggested.
Caixa's loan book has risen by an annual average of 40 percent since 2009, while that of BNDES - which is twice as big as the World Bank's - has more than quadrupled since 2005. BNDES is Brazil's main source of long-term corporate credit.
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