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Brazil state bank poised to slow loan growth -Fitch
June 15, 2011 / 10:21 PM / 6 years ago

Brazil state bank poised to slow loan growth -Fitch

* BNDES loans supported stable credit trends, Fitch says

* Fitch sees BNDES loan book growing at slower pace

* BNDES support for national champions not “unconditional”

By Guillermo Parra-Bernal

SAO PAULO, June 15 (Reuters) - Brazil’s state development bank, BNDES, will likely slash the average size of loans and slow the pace of disbursements this year to help finance smaller- and medium-sized companies, Fitch Ratings said on Wednesday.

In the medium term, BNDES will help government fight inflation by paring loans to the country’s largest companies, Fitch analysts led by Jay Djemal said. BNDES’ loan book more than doubled to 365 billion reais ($228 million) between 2007 and 2010.

Fitch’s remarks pit the ratings company against renowned analysts in Brazil, who say the government is unlikely to allow the development lender to scale back lending to prevent a steep decline in economic activity.

“Fitch generally views the presence of BNDES in the capital structure as a positive credit factor,” Djemal and his team wrote in the report.

BNDES, which has a loan book three times bigger than that of the World Bank, has been criticized for its expansionary credit policy that crowded out private banks from the financing of investment and other corporate activities.

Recent data showed that loan disbursements by Rio de Janeiro-based BNDES [BNDES.UL] fell 2 percent in the first quarter, marking the first year-on-year decline for the period since 2006 as the government struggled to curb credit and slow the fastest expansion in a quarter century.

In the 2008-2010 period, the lender’s credit portfolio grew by about 30 percent, well above the compounded average growth rate of lending for its non-government rivals. BNDES focused its activities on the larger borrowers -- its top 10 clients accounted for about 39 percent of loans last year, Fitch said.

Even if the bank puts the brakes on loan disbursements, the government will likely continue to capitalize it -- preparing it for a ramp-up in lending in the medium term.

Late on Tuesday, lower house lawmakers passed a bill to allow the National Treasury to sell $33 billion worth of local debt to support BNDES’ capital base.

And, as an alternative to government funding, BNDES could also reduce its equity stakes in some companies to free up cash that could in turn be funneled into new loans, Fitch said.

NATIONAL CHAMPIONS

BNDES is the second largest holder of Brazilian equities after Previ, the pension fund owned by employees of state-controlled lender Banco do Brasil (BBAS3.SA).

Former President Luiz Inacio Lula da Silva pumped a record 180 billion reais into the BNDES between 2009 and 2010 to help it execute his agenda of fostering mergers among local companies and creating jobs.

Those mergers, which focused on the food processing, paper and pulp and telecommunications sectors, created so-called national champions -- home-grown conglomerates that Lula wanted to compete globally with rivals elsewhere.

The Fitch report stated that those companies count on “implicit but not unconditional” BNDES support -- a view that is not shared by many investors who rate some of those companies as enjoying a quasi-sovereign status.

“BNDES does not have an explicit policy of supporting Brazilian corporations in an effort to make them major global players,” the report noted.

Companies where the lender owns a stake were more likely to win credit rating upgrades than those that are not, the report found.

$1=1.60 reais Reporting by Guillermo Parra-Bernal; Editing by Leslie Adler

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