SAO PAULO, July 2 State-run Caixa Econômica Federal, Brazil's largest mortgage lender, is considering selling a pool of distressed consumer loans to investors, the first step in a broader plan to get rid of bad loans and free up capital, a source said on Wednesday.
About 3 billion reais ($1.35 billion) worth of defaulted loans could be sold to funds that specialize in dealing with distressed assets, the source said.
Other steps being considered include the issue of securities backed by some of the bad loans, said the source, who declined to be identified because the matter remains under study.
Such moves allow banks to take defaulted debt off their books, creating room to fund more loans and comply with regulators' capital requirements. Caixa consulted a number of distressed debt funds about doing such a deal, the source said, adding that no timetable for a deal has been set.
Brasilia-based Caixa wants to gain know-how on how to clear defaulted loans from its balance sheet, a common practice among lenders in Latin America's largest economy, the source said. For lenders such as Caixa carrying distressed assets can increase operational costs and be a distraction because of the time and money needed to deal with them.
In May, state development bank BNDES unveiled a plan to sell about 6 billion reais worth of loans in arrears.
Private-sector banks have far more experience. In December 2011, Banco Santander Brasil SA, the largest foreign lender in Brazil, auctioned off 16 billion reais in bad loans, so far, the largest transaction of its kind in the country.
The move comes a couple of years after Caixa aggressively entered the consumer credit market under the instruction of the federal government, the bank's only shareholder. Caixa's loan book was 520 billion reais at the end of March, almost three times the size of outstanding credit at the end of 2010.
At the end of the first quarter, the amount in problem loans on Caixa's books, known in Brazil as E-H loans, totaled 25 billion reais, or the equivalent of 4.8 percent of outstanding credit.
Caixa's loans 90 days or more in arrears rose to the equivalent of 2.6 percent of outstanding loans in the first quarter from 2.3 percent a year earlier. That so-called default ratio is the industry's most widely followed gauge for measuring loan delinquencies.
($1=2.22 Brazilian reais) (Reporting by Guillermo Parra-Bernal and Aluísio Alves; Editing by Peter Galloway)