Moody's sees shift in Brazil state bank policy unlikely


SAO PAULO, Oct 1 (Reuters) - Brazil's government is unlikelyto make good on promises to rein in aggressive lending growth bystate-run banks because it could hamper support for the rulingparty in next year's presidential election, a senior Moody'sInvestors Service analyst said on Tuesday.

The ability of President Dilma Rousseff's government tophase out a five-year-long strategy to use government-controlledlenders to boost credit access and cut borrowing costs forconsumers and small companies will suffer as the electioncampaign looms, Ceres Lisboa, who analyzes Brazilian financialinstitutions for Moody's, said in Sao Paulo.

In March, Moody's cut the long-term issuer ratings of statedevelopment bank BNDES and Caixa Economica Federal, Brazil's No.1 mortgage lender, citing their eroding capital position afteryears of rapid credit expansion. At the same time, BNDES andCaixa increased dividend payouts to the government, which has inturn replenished their capital with Treasury debt instead ofcash.

"The money the government raised was funneled into statebanks as debt, making the banks' capital structure morevulnerable," Lisboa said at an event sponsored by Moody's. "Thegovernment rhetoric is positive, but, in practical terms, apolicy shift may be a little difficult."

In recent weeks, government officials acknowledged the needto put the brakes on state-run lenders - which are growing theirloan books at a pace five times faster than their private-sectorrivals. Moody's March decision to downgrade the banks reflectedthe growing concern among investors over Brazil's increased useof state lenders to revive growth regardless of the strategy'sfiscal consequences.

State banks, which now account for more than half of alloutstanding loans in Brazil, have ventured into riskier creditmarkets such as consumer, auto and small-sized corporate lending- areas that private-sector lenders are shunning in the wake ofstill-high defaults. Limiting borrower access to state lenderscould risk alienating voters, Lisboa suggested.

Caixa's loan book has risen by an annual average of 40percent since 2009, while that of BNDES - which is twice as bigas the World Bank's - has more than quadrupled since 2005. BNDESis Brazil's main source of long-term corporate credit.

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