Brazilian borrower change highlights regulatory issue
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.