Brazil­ian bor­rower change high­lights reg­u­la­tory is­sue

The Pak Banker - - 6BUSINESS -

Global rat­ing agency Fitch says Brazil­ian states will be­gin to bor­row from more domestic pri­vate banks and in­ter­na­tional in­vestors in the near term and those lenders should be aware of im­por­tant reg­u­la­tory con­di­tions and pen­sion obli­ga­tions. In our view, state fi­nanc­ing will in­creas­ingly be pro­vided by those in­vestors be­cause the tra­di­tional domestic cred­i­tors such as Banco Na­cional do De­sen­volvi­mento Eco­nomico (BNDES), Caixa Eco­nom­ica Fed­eral (CEF), and Banco do Brasil (BdB), are reach­ing their statu­tory lend­ing lim­its with neg­a­tive im­pli­ca­tions for the gross fed­eral debt. In ad­di­tion, most mul­ti­lat­eral and supra­na­tional agen­cies are also ap­proach­ing their Brazil­ian lend­ing lim­its.

Global rat­ing agency Fitch be­lieves one par­tic­u­lar reg­u­la­tory con­di­tion is im­por­tant to un­der­stand. The Brazil­ian fed­eral government guar­an­tees all ex­ter­nal debt and the coun­try’s trea­sury con­stantly mon­i­tors states’ cred­it­wor­thi­ness. The­o­ret­i­cally, states that are rated too low on this scale can nei­ther re­ceive guar­an­tees nor en­ter into new credit agree­ments. How­ever, we be­lieve that in prac­tice states from all rat­ing classes are el­i­gi­ble to re­ceive guar­an­tees and may raise new fund­ing. In our view, the lend­ing en­vi­ron­ment would be im­proved if this process was more trans­par­ent.

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