Loan-loss provisions at state development bank BNDES are unlikely to increase significantly in coming months unless an
unexpected case arises, a sign Brazil's No. 1 source of long-term corporate lending is comfortable with current levels of capital buffer.
unexpected case arises, a sign Brazil's No. 1 source of long-term corporate lending is comfortable with current levels of capital buffer.
For years, provisions at Rio de Janeiro-based BNDES were below the banking system's average, which forced management to hike them as corporate loan defaults soared over the past year, comptroller Vania Borgerth said on Monday.
As of June, BNDES had set aside 16.079 billion reais ($5.1 billion) in provisions plus additional loan reserves, more than twice than a year earlier. Fallout from Brazil's harshest-ever recession also led BNDES to cut exposure to large borrowers by 8 percent in the period, she said.
"I see no reason at this point to expect a repetition of our recent decision to boost provisions," Borgerth told reporters at a conference call to discuss results. "We're comfortable."
Over the past year, BNDES has cut excess loan book exposure to the nation's largest borrowers, and Borgerth said the bank has no plans to "breach exposure limits again."
By giving smaller firms more access to cheap financing, Brazil's government is discouraging rampant borrowing by large conglomerates, which widely enjoyed subsidized credit during 13 years of left-wing Workers Party administrations that ended last year.
Borgerth's remarks come days after state-controlled Petróleo Brasileiro SA, BNDES's largest client, pledged to soon resume financing with the bank.
RETURN TO PROFIT
BNDES returned to profit in the first half as gains in the value of investment arm BNDES Participações SA's portfolio offset a hike in provisions and declining loan book growth.
Net income came in at 1.34 billion reais in the period through June 30, compared with a loss of 2.17 billion reais a year earlier. The bank did not release full quarterly results.
Bolstering profit, investment arm BNDESPar delivered income of 1.42 billion reais in the period, reversing a loss of 4.92 billion reais a year earlier. Provisions rose 15 percent to 4.726 billion reais, as defaults led BNDES to add additional reserves of 1.4 billion reais.
It will mark to market the value of the about 21 percent it holds in JBS SA by around September, she said. Part of the reason BNDES did not book an impairment on the investment was that JBS auditors "did not feel comfortable releasing JBS statements before BNDES's release of its own data," she said.
BNDESPar is the second largest shareholder in JBS, whose controlling family was ensnared in a massive corruption scandal. It led the company to refinance over 20.5 billion reais of maturing loans with banks.
$1 = 3.1834 Brazilian Reais.
By: Guillermo Parra-Bernal (Reuters).
Reporting: Guillermo Parra-Bernal.
Editing: Jeffrey Benkoe and Chizu Nomiyama.
Photo: Petrol World.
Review: Emerging Market Formulations & Research Unit, Flagship Records.