SAO PAULO, July 22 Brazil's central bank is
likely to approve a request by state-run lender Caixa Econômica
Federal to book 28 billion reais ($12.6 billion) in hybrid
securities as common equity before year-end, sources said, a
move that should help allay capital concerns at the nation's No.
1 mortgage lender.
The central bank has already agreed to allow Caixa to record
the securities as capital under the implementation of Basel III
capital requirements, but was still deciding where on its
balance sheet to book them, said a first source, who declined to
be named because the discussions were still underway.
Caixa's efforts come as peers in developed and emerging
market countries struggle to phase in the Basel III rules, which
were designed to stave off a repeat of the crisis that followed
the collapse of U.S. investment bank Lehman Brothers Inc late in
Investors have voiced concerns that years of rapid growth in
Caixa's loan book, fueled by the government's pressure to boost
access to credit, have weighed down its capital position.
A second source said the central bank was gauging whether to
allow Caixa to book the instruments as Tier 1 capital,
which consists mainly of common stock, retained profits and, in
some cases, non-redeemable, non-cumulative preferred stock.
A third source said executives at Caixa recently told
investors the request could be approved soon.
One of the sources said that with the central bank's
approval, Caixa's regulatory capital ratio - the amount of
capital that regulators require a bank to hold - could jump by
1.15 percentage points. The ratio reached 13.7 percent at the
end of the first quarter, well above the central bank's minimum
11 percent ratio.
Both Caixa and the central bank did not have an immediate
On July 16, Caixa raised $500 million in 10-year Tier 2
bonds, the first of their kind to incorporate Basel III features
in Brazil. Tier 2 bonds rank lower in repayment order than
loans, creditor rights and other subordinated debt.
According to rules in Brazil, this type of Tier 2 bonds can
be written off if a bank's common equity Tier 1 capital falls
below 4.5 percent of risk-weighted assets, if the bank receives
a capital injection from the government, or if the central bank
decides the lender is financially unfeasible.
Lenders in Brazil do not appear to need to raise fresh
capital to comply with Basel III rules until 2016, the central
bank recently said. About 15 billion reais in capital would need
to be raised between 2017 and 2019 to meet the new rules,
according to the presentation.
In recent months, central bank policymakers have announced
steps such as allowing lenders to use deferred tax assets as
capital to help smooth out the implementation of Basel III
rules. Brazil began to implement Basel III in October.
Banks must fully comply with the rules by early 2019.
($1 = 2.22 Brazilian reais)
(Reporting by Guillermo Parra-Bernal, Aluísio Alves and
Patricia Duarte; Editing by Jeffrey Benkoe)