Brazil to Double Lending Capacity of Its Development Bank

Martha Beck
·4 min read
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(Bloomberg) -- Brazil’s development bank plans to issue tax-free bonds to double credit operations to nearly $40 billion without the Treasury’s help, according to its planning and project structuring director.

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Nelson Barbosa, who served as finance minister under Dilma Rousseff and has now joined the ranks of the bank known as BNDES, said the bonds will be linked to development projects in areas where the institution wants to invest, such as energy transition, innovation and infrastructure. They will also be available to individual investors, sweetened by the exemption of income tax.

“One of our goals is to restore BNDES’s historical size, which means doubling the size of the bank,” Barbosa said in an interview in his office in Brasilia. “Instead of the Treasury borrowing and transferring funds to BNDES, the bank itself will raise the money.”

BNDES had historically disbursed about 2% of Brazil’s gross domestic product in loans, or 200 billion reais ($38.5 billion) at current value, according to Barbosa. In order to achieve that, it will be necessary to double the volume of credit operations, currently slightly under $20 billion, by the end of President Luiz Inacio Lula da Silva’s term.

This time, however, the government wants to avoid past mistakes, including huge injections of public money that hurt public finances and Brazil’s fiscal credibility. BNDES’s loan portfolio had gradually expanded with Treasury funding during Lula’s first two terms in office, reaching $200 billion under his successor Rousseff, more than that of the World Bank at the time.

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Much of the financing backed large companies such as state-owned oil giant Petroleo Brasileiro SA and meatpacker JBS SA as they embarked on ambitious acquisition sprees and global expansions. Along with the so-called national champions policy, came allegations that the bank was favoring political allies and handing generous bonuses to its employees based on the volume of credit operations they closed, which led to corruption probes. Internal investigations carried out by the bank found no wrongdoing.

Now, BNDES will direct its resources to certain economic activities it considers necessary to spur growth and jobs, not specific companies. If funds end up benefiting a small number of companies in a specific sector, that will be a consequence of the concentration that already exists, and not a strategy of the bank, Barbosa said.

“Our focus is more on activities rather than companies,” he said. “We want to stimulate innovation, reindustrialization, artificial intelligence.”

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For now, BNDES will also halt a large divestment plan that started during the Jair Bolsonaro, government when the bank slashed its holdings in equities, local bonds and investment funds by more than 56%. The new administration is taking a close look at the bank’s remaining portfolio of 60 billion reais in publicly traded firms before making a decision.

“At this moment, the new board is evaluating what actions need to be taken,” Barbosa said. “There are no plans for large divestments in the short-term.”

Americanas, Subsidies

The government is still measuring the impact of the implosion of retailer Americanas SA in the country’s credit market, Barbosa said. The company filed for bankruptcy protection last month after revealing $3.8 billion gap in its balance sheet.

“For the time being, it is a liquidity crunch concentrated in the retail sector that can be resolved by the central bank and the banking system itself,” he said.

  • Read More: Brazil Credit Crunch Is Brewing as Americanas Fallout Grows

Still, the government has detected a credit slowdown which may be structural or not, he said, adding that BNDES will step in if necessary, offering credit lines for micro, small and medium-sized companies, as well as for those in need of working capital.

The bank is also considering charging different interest rates depending on the profile of the client. In only some cases, the rate would be subsidized.

“Subsidies should not be demonized, but we need to seek their ideal size and use them effectively and transparently,” Barbosa said, citing sectors such as innovation, climate sustainability and energy transition as potential potential candidates. “If there is a subsidy from BNDES, it will be done transparently and for a few select sectors.”

(Updates with comments on BNDES’s divestment plan in paragraphs 9-10.)

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