Brazilian companies will need to look to capital markets instead of traditional bank loans for a substantial portion of their funding by early next year, as stricter international capital rules pressure lenders to cut balance sheets, a study found.
Brazilian banks must comply by January 2019 with the new Basel III capital requirements, conceived after the 2008 financial crash to force banks worldwide to hold more capital.
The research paper, by the asset management unit of Brazil’s largest private lender Itaú Unibanco Holding SA, found that corporate borrowing through bonds and other debt securities will need to grow by between 2 and 4.8 times the current level by 2022 to meet companies’ financing needs as banks are compelled to cut outstanding loans.
As a result, Brazil’s corporate debt stock is likely to soar to between R$ 343 billion ($87.67 billion) and R$ 799 billion by 2022 from R$ 165 billion in 2018, the study found.
«Under Basel III, banks will turn to loans that require less capital expenditure, such as mortgages and payroll-backed credit, leaving companies to seek more financing in the capital markets», said Gerson Konishi, the Itaú Asset Management portfolio specialist who was responsible for the study.
In addition to requiring banks to boost their core capital ratio to 7% from 4.5%, Brazil’s central bank is also obliying them to set aside more capital for corporate loans. A loan to a large company is almost 2.5 times costlier to banks in terms of capital than mortgages, for instance, according to the central bank rules.
The situation will challenge Brazilian companies to get financing as the country’s capital markets lag not just developed countries but many other emerging markets. International bond markets are often expensive for Brazilian companies, which generally need to hedge foreign currency debts.
Bonds and equities sold by private companies comprised just 2% of Brazil’s gross domestic product between 2013 and 2015, a McKinsey study found, lagging countries such as Chile (6%), China (8%) and the Philippines (4%).
If companies cannot borrow through the capital markets, the economy could slow, the Itaú study found. The Basel III requirements are also likely to drive corporate borrowing rates higher if demand exceeds supply, according to the study.
Exacerbating the challenges, government financing sources like state development bank BNDES have also scaled back lending due to tight budgets.

SAVING CAPITAL
Brazilian banks, including state-controlled lenders like Banco do Brasil SA, have already started cutting corporate loan exposure in favor of retail. Banco do Brasil’s corporate loan book shrank 3% over the latest year to R$ 133.8 billion.
In a glimmer of hope for Brazil’s capital markets, which have suffered mainly from competition with sovereign bonds with high interest rates, investment funds have boosted holdings in real-dominated corporate bonds, said capital markets industry association Anbima director José Eduardo Laloni.
Corporate bonds held by investment funds surged 18% to R$ 137.5 billion. That is still just a fraction of the roughly R$ 4 trillion in assets under domestic funds’ management, most of which remains in government bonds.
Laloni said growth in capital markets will depend on Brazil’s ability to keep benchmark interest rates and inflation low. ($1 = 3.9122 reais)

Original story: Reuters | Carolina Mandl
Photo: ITAÚ
Edition:Prime Yield

With high defaults in real estate financing caused by the economic crisis, the number of real estate repossessed by Banks has skyrocketed in recent years in Brazil. Since the beginning of 2014, the five major banking institutions of the country recovered R $ 11.5 billion in real estate due to lack of payment. A figure that corresponds to about 70 thousand houses and apartments, estimates the industry.

Nowadays, the five biggest banks in Brazil have a record volume of R$ 13,7 billion in real estate waiting in line for potential interested – including amongst them those units that were already in stock – a figure that grew 745% in four and a half years.

Banco do Brasil, Bradesco, Caixa Económica Federal, Itaú Unibanco and Santander balance sheets show that, together, these institutions had an average annual growth of almost R$ 2 billion in the volume of real estate repossessed between 2014 and 2017. The growth pace continues strong in 2018, and in just six months, banks took more than R$ 1.48 billion in homes and apartments from delinquents.

Leader in the real estate sector, Caixa, heads up this movement concentrating 70% of the total of repossessed units. In June there were about 47 thousand real estate assets from clients that, altogether, had a value of R$ 9.1 billion. In 2016, the total stock was less than half: 23 thousand units.

Same phenomenon is observed among its competitors, although with less intense pace. Since the beginning of 2014, Bradesco, Santander and Itaú totaled, each, about R$ 1 billion to this portfolio, while BB recorded the less expressive growth, with R $ 116 million in the period.

Original Story: Economia.uol /Fernando Nakagawa
Photo: Shutterstock
Edition and translation: Prime Yield

In the first half of the year, commercial real estate prices were stable in four of the most important Brazilian markets: Rio de Janeiro, São Paulo, Belo Horizonte and Porto Alegre, according to the latest FipeZap Commercial Index.
Rio was the city with the highest sales prices: R$ 10,427/sqm, while São Paulo led the way with the highest rents: R$ 43,18/sqm.
Looking into June, the top five Brazilian neighbourhoods for commercial sale prices were all in the Cidade Maravilhosa, with Leblon topping the list at R$34,478/sqm. In a distant second was Ipanema, where listings averaged R$24,115/sqm, followed closely by Jardim Botânico at R$23,524/sqm Rounding out the top five were Catete at R$16,041 and Flamengo at R$15,929/sqm.
Similarly, for commercial rental prices, Rio dominated with four of the top five highest average listings among Brazilian neighbourhoods in June. Again, Leblon easily sat atop the list at R$126.51/ sqm. Ipanema was next at R$82.83, followed by Botafogo at R$69.43 and Jardim Botânico at R$ 66.59/sqm. Closing out the top five for commercial rental prices  was Itaim Bibi in São Paulo, where prices averaged R$64.97/sqm in June.
Taking into account the last twelve months, commercial sale and rental prices fell slightly, -2.07 % and -3.06 %   respectively across Brazil.
However, both figures fell far below the accumulated inflation rate during the twelve-month period of 4.39 %, as calculated by the IPCA/IBGE (National Consumer Price Index/Brazilian Institute of Geography and Statistics).
The latest FipeZap Commercial Index also compared Brazil commercial real estate as an investment vehicle compared to lower risk alternatives, such as the CDI (Certificado de Deposito Interbancário, in English, Interbank Certificate of Deposit).
When compared to the CDI, a daily average rate of overnight interbank loans, those who have invested in Brazil commercial real estate have taken losses.
Over the last twelve months, the CDI has yielded a return of 6.8 %. However, according to FipeZap, owners of commercial real estate who leased their property were only able to gain an average return of 2.2 % during that period.
The FipeZap Index is prepared by the Economic Research Institute Foundation (Fipe) using data from the Brazilian Institute of Geography and Statistics (IBGE), in partnership with the Brazilian real estate website, Zap Properties.

Original Story: The Rio Times | Nelson Belen
Photo: FreeImages.com/Carlos Koblischek
Translation & Edition: Prime Yield

Brazilian state bank Caixa Econômica Federal will use proceeds raised in a new joint venture with France’s CNP Assurances SA to boost its capital ratio. The news was advanced to Reuters by the bank’s Chief Executive Officer, Nelson Antonio de Souza.
Under this joint-venture, Caixa will sell CNP life insurance products in its branches, and the French company will pay R$ 4.65 billion ($1.13 billion) for a 40% stake in the new company.
As told by Souza, Caixa is exploring the sale of other assets, including lottery licensing unit Caixa Instantanea SA, part of its loan portfolio and real estate. After failing to sell Caixa Instantanea earlier this year, the bank intends to resume its sale effort by December.
The bank faced high delinquency rates after its aggressive loan book expansion unde the country’s former Workers Party government.
Souza also said that Caixa wants to grow its loan book in credit lines that require less capital, such as payroll-backed loans. ($1 = 4.1056 Brazilian reais)

Original Story: Reuters | Aluisio Alves
Photo: Caixa Econômica Federal/Rodrigo de Oliveira
Translation & Edition: Prime Yield

BVA Bank, which filed for bankruptcy in 2014, plans to sell further R$ 550 millions in NPL later this year.
According to Eduardo Seixas, partner from the business restructuring consultants Alvarez & Marsal, the auction will take place in October and has set an R$ 70 million as minimum bidding value.
Last year, BVA sold an R$ 2,3 billion NPL portfolio to Enforce, the credit recovery arm of BTG Group, for R$ 211 million. A sales price that was 14% below the minimum bidding value set up for that auction, which registered 80 bids.
«We believe that this time the completion between investors will be even stronger», Seixas said. «Its smaller dimension should attract an even higher number of potential buyers and there is also a higher percentage of property backed loans».
Most of these loans were granted to average sized companies, according to Seixas, that also revealed that the company built a data room were the potential buyers can access to further details.
According to Alvarez & Marsal, since 2014 the sales of NPL assets have already brought around R$ 450 million to the Bank’s creditors. The goal is to sell all the bank’s assets until the end of the year.

Original Story: Bloomberg | Felipe Marques
Photo: FreeImages.com/Jason Morrison
Translation and Edition: Prime Yield

Caixa Econômica Federal has opened the period for the presentation of proposals to the acquisition of two lots comprising loan-recovery properties, but that still have unsolved issues to address– the so–called BNDUs, or assets not for own use. The properties are gathered in only two lots, of about 3,000 properties each, accounting for apartments, townhouses, commercial business rooms and warehouses. The bidding process will be restricted and lots comprise both properties subject to or without legal action. Investors specializing in distressed assets had been paying close attention to this opportunity since February, when Caixa gave the first signs to the market on a possible sale. However, changes in the Bank’s board of directors and presidency have delayed this process. Proposals should be submitted by July 27th and will be opened on August 2nd.

Original Story: Estadão/Economia (Coluna do Broadcast)
Photograph: Caixa (divulgação)
Translation and Edition: Prime Yield

Recovery, Itaú Unibanco’s credit recovery company, acquired over R$ 4 billion (bn) in Non-Performing Loans (NPLs) portfolios – the so called bad debt – from Bradesco. This is the second time that the company acquires operations from the financial institution, underlining its independence, which was questioned after the company changed hands from BTG Pactual to Itaú. The operation, whose winner was selected last 9thJune, is to be completed during the current month (June), allowing Bradesco to account it in its balance sheet on the 2nd quarter. However, being overdue loans with an average two to ten-year term, this won’t ben producing effects in the Banks results.

Since Bradesco started to dispose bad debt – a strategy that was not an option for this institution previously to the country’s recent crisis and before purchasing HSBC –, the bank has already disposed about R$ 20 billion in NPLs. In the 1st half of 2018, alone, more than R$ 9 billion were transacted. As the bank seems to prefer this strategy and, unlike its competitors, still does not consider to have its own credit recovery company, the market is now expecting Bradesco to put on sale a similar NPL volume over the second half of the year, boosting the transaction of NPLs portfolios in Brazil. The bank is, however, reserving information about the volume to come into the market. Bradesco and Recovery prefer not to comment on this information.

Original Story: Estadão/Economia (Coluna do Broadcast)
Photograph: Itaú
Translation and Edition: Prime Yield

The number of Brazilian consumers listed in credit default reached 63,29 million in May, reflecting a 2.78% year-on-year increase. Data by the Serviço de Proteção ao Crédito-SPC Brasil (credit protection services) and Confederação Nacional de Dirigentes Lojistas-CNDL (a retailer association) says that the Southeast region was the one recording the sharpest increase in consumers listed as defaulters in Brazil – a status that creates restrictions for buying on credit -, reflecting a growth of 8.07% in May. In the other regions, growth has been lower, with 2.95% in Northeast, 2.27% in Center-West, 1.55% in North and 1.08% in South.

Northern region has the highest rate of defaulters – 48% of adult population living in this region, or 5,8 million defaulters. Northeast region follows, with 17,45 millions of credit defaulters or 43% of adult population; Center-West, recording a 4,94 million listed defaulters (42% of population), Southeast, having 26,94 million defaulters (41% of population) and South, 8,15 million defaulters (36%).

Of total national 63,29 million defaulters, 17,9 million are aged 30-39 years.

Original Story: Agência Brasil
Photograph: Depositphotos
Translation and Edition: Prime Yield

Itaú Unibanco and Citi have placed up for sale portfolios of non-performing loans of companies, boosting the Brazilian NPL transaction markey over the 2nd quarter. With a market traditionally concentrating in NPLs in the household segment, the disposal of corporate portfolios is seen as an evolution, thus attracting specially international specialized funds, the so–called “vulture capital”. As for Itaú, the bank has launched into the market for sale about 40 companies undergoing judicial reorganization.

The institution has already received offers from two interested parties and expects to close the operation by July. No big case of corporate reorganization is included in this lot.

Citi, which has been focusing only on the corporate segment in Brazil after selling its retail operation to Itaú, is putting into the market some R$70 million in medium-sized company’s loans. This process is now at an initial stage. Citi and Itáu have both not commented on this information.

Original Story: Estadão/Economia (Coluna do Broadcast)
Photograph: Shutterstock
Translation and Edition: Prime Yield

Pension reform will be the“litmus” test of Brazil’s ability to bring its fiscal deficits under control and avoid unsustainable growth of its already high public debt, the Organization for Economic Cooperation and Development (OECD) said on Wednesday, 28th February.

In its annual survey of the Brazilian economy, the OECD said the streamlining of Brazil’s generous social security system was urgent because it costs 12 percent of GDP.

“Aligning Brazil’s pension rules with those practiced in OECD countries would imply a minimum pension lower than the minimum wage, with eligibility to some prorated pensions for shorter periods,” the survey said.

Brazil’s President Michel Temer failed to muster enough support for his pension reform proposal this month and it has been put off until after the October elections and will likely be left for the next government to deal with.

The OECD warned that if Brazil fails to reduce mandatory public spending and the government’s primary deficit is not turned to a surplus, the country’s debt relative to GDP“will continue to rise without bounds and not be sustainable.” Failure to comply with a spending cap introduced by the Temer administration, that limits real growth in public spending to the rate of inflation for 20 years, would undermine confidence in the Brazilian economy and trigger a return to recession.

“Successful implementation of the pension reform, without which the expenditure rule cannot be met in the medium term, will be a litmus test for the ability of the authorities to implement further structural reforms,” the survey said.

The OECD said higher volatility on financial markets related to a normalization of U.S. monetary policy could also present risks for Brazil, though its Central Bank has well managed bouts of volatility in the past.

Substantial reserves and an expected strong inflow of foreign direct investment would cushion any related exchange rate risks, the survey said.

The OECD sees the Brazilian economy growing by 2.2 percent this year and 2.4 percent in 2019, a lower forecast for next year than the government’s projection of 3 percent.

As Brazil puts its worst recession in decades behind it, inflation will creep up to 4.2 this year and next, from 3.9 last year, the OECD estimates.

Gross public debt, assuming that the current fiscal reform plan will advance, will rise to 77.1 percent of GDP this year and to 81.1 percent in 2018, according to the OECD’s forecast.

Original Story: Reuters – Anthony Boadle
Photograph: Depositphotos
Translation and Edition: Prime Yield

Brazil’s central bank chief Ilan Goldfajn said that Latin America’s top economy must somehow continue on the path of reforms to maintain low inflation and a sustainable economic recovery.

Goldfajn also said that the central bank expects a solid economic recovery this year with inflation reaching goals, though he warned of risks. President Michel Temer last week gave up pension reform ahead of October’s presidential elections, a legislative setback that prompted Fitch to cut Brazil’s credit rating further into junk territory.

The NPL ratio of the Bank in Portugal is 7.5%, decreasing 1 percentage point compared to 2016. Now this indicator figures 392 million euros.

Original Story: Reuters
Photograph: AFP
Translation and Edition: Prime Yield