REFILE-Brazil central bank sees risks in Banrisul loans to state government
(Refiles to change "see" to "sees" in headline and first paragraph)
By Marcela Ayres
BRASILIA May 8 (Reuters) - Brazil's central bank sees risks that a regional bank may have given excessive loans to its controlling shareholder, the state of Rio Grande do Sul, whose ability to honor its debt could be impaired if Brazil goes into recession this year as expected.
Banrisul has lent 7.7 billion reais ($2.5 billion) to Rio Grande do Sul, one of Brazil's most indebted states, from a bank fund made up of deposits in court, according to internal central bank documents seen by Reuters.
Deposits in court consist of payments made to a court officer as a precaution while litigation is pending over who is entitled to the funds.
Brazilian legislation allows state governments to borrow against court deposits, but the size of the bank's loan to Rio Grande do Sul is larger than Banrisul's net assets of about 5.7 billion reais, and this has raised red flags among central bank auditors.
"The state's delicate financial situation ... raises doubts about its ability to honor its obligations over time, indicating growing risks to the (financial) institution," the central bank report said.
A central bank spokesman declined to comment on the report.
Banrisul said there is no risk to its operations as it is merely a depositary of the court-deposit funds, which it does not consider to be part of its assets. Continuación...