Barazil's central bank provided a lifeline to small-sized lenders facing a funding squeeze amid Europe's deepening debt crisis by encouraging bigger rivals to purchase some of their assets.
Under new rules by the monetary authority banks will be allowed to use part of their reserve requirements to purchase credit portfolios and longer-term bonds — known as letras financeiras — from banks whose capital doesn't exceed 2.2 billion reais (Dh4.33 billion). If they don't, they'll be punished by losing 11 per cent interest payments on some of the funds they're required to deposit at the central bank.
"The measure is positive and helps increase the volume of credit in the Brazilian economy because middle-sized banks have a capacity to generate credit that bigger ones don't," said Ricardo Gelbaum, executive financial director for Banco.
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The shift in reserve rules comes as President Dilma Rousseff's administration is trying to expand credit to reignite economic growth that stalled in the third quarter. Starting February 24, the central bank will no longer pay interest on 27 per cent of funds that banks are required to hold at the monetary authority as reserve requirements for time deposits. That threshold will rise to 36 per cent starting on April 27. Currently reserve requirements on time deposits are paid the country's benchmark rate, which stands at 11 per cent.
Authorities have boosted efforts in the past year to promote consolidation in Brazil's banking industry as overleveraged, smaller lenders lose access to overseas funding at the same time they're preparing to adhere to tougher, new accounting standards.
In April, the nation's guarantee deposit bank, known as the FGC, funded the acquisition of Banco Schahin by Banco BMG, a lender focused on payroll-deductible loans. In October, the central bank then ordered the liquidation of Banco Morada.