* Central bank sees specific capital needs for some banks
* Deferred tax assets will be allowed to count as capital
* Banks can turn debt into equity in times of stress
BRASILIA/SAO PAULO, March 1 The government will
allow Brazil's banks to convert tax credits into capital and
some debt into equity during times of financial stress, in a
surprising decision that came as officials laid out guidelines
for the introduction of new capital rules.
Under guidelines for the implementation of Basel III rules
in Brazil, central bank and finance ministry officials also said
on Friday that the banking system appeared to have plenty of
capital for now and the next two years.
The local bonds that will be eligible for conversion into
stock are the so-called "letras financeiras" that comprise both
debt and equity-like features.
The government will allow banks to use tax credits as funds
that can be counted as capital if a situation of financial
stress leads to losses or bankruptcy. Currently, there are more
than 110 billion reais ($55.5 billion) of tax credits on the
balance sheets of domestic banks, of which they will be allowed
to use no more than 60 billion reais as capital during a crisis.
The decision to allow for a softer implementation of capital
rules should benefit state-run banks more than their
private-sector peers as the capital waiver on deferred-tax
assets will substantially decrease their need for fresh capital.
Shares of state-controlled Banco do Brasil SA,
the nation's No. 1 lender, jumped 2 percent, leading Friday
gains in the Bovespa stock index.
The proposed plan should allow Banco do Brasil as well as
Caixa Econômica Federal, the nation's largest mortgage
bank, to boost loan growth at a time when the government of
President Dilma Rousseff is struggling to kick-start economic
growth and investment. The fiscal cost of giving the go-ahead to
include deferred-tax assets in the balance sheet is almost nil.
"In general, these rules make for a more flexible framework
for the implementation of Basel III," said Sergio Odilon dos
Anjos, the central bank's head of regulation, at a news
Shares of Banco Santander Brasil SA, perceived
by many analysts as the most capitalized bank among the top five
lenders in Brazil, gained 1 percent. Itaú Unibanco Holding SA
and Banco Bradesco SA, the No. 1 and No. 2
private-sector lenders respectively, rose 0.7 percent and 0.4
percent on Friday.
Basel III, part of a global accord to standardize capital
adequacy and liquidity risk rules in the banking industry, is
scheduled to be introduced between 2013 and 2018. The regulatory
framework that comprises Basel III was developed in response to
perceived flaws in financial regulation that were revealed
during the global financial crisis of 2008.
The central bank, Brazil's financial industry watchdog, will
increase in "a gradual manner" the minimum regulatory capital
ratio - or the percentage of a bank's capital to its
risk-weighted assets - to between 10.5 percent and 13 percent,
from 8 percent currently.
Luiz Awazu, the central bank's head of international
affairs, whose office is coordinating the implementation of
Basel III rules in the country, said Brazil's banking system
"will have no need to raise additional capital between 2014 and
He said that, "on a bank-on-bank basis, no lender needs to
raise funds between 2013 and 2015." From 2017, "just a few
banks" may need to raise fresh capital, Awazu said, declining to
About 2.9 billion reais of fresh capital would have to be
raised by those banks in 2017, 5.1 billion reais in 2018 and 6.7
billion in 2019, he said.