SAO PAULO, Aug 20 (Reuters) - State-controlled Banco do Brasil SA will allocate part of an extra 9 billion reais ($2.6 billion) in emergency credit to construction, farming and oil companies hamstrung by a souring economy, Chief Executive Officer Alexandre Abreu told Folha de S. Paulo newspaper in an interview published Thursday.
Brazil’s largest bank by assets will extend the loans to help suppliers of the nation’s largest companies retain staff, Abreu told Folha. Revenue flow from their supplying contracts will back the loans, lowering credit risk, he added.
On Wednesday, Banco do Brasil agreed to increase its loan exposure to the nation’s largest companies by 15 billion reais, a sign that President Dilma Rousseff is again using state lenders to shore up Latin America’s largest economy. In the interview, Abreu said the steps were part of Banco do Brasil’s commercial strategy, not part of a government policy package.
The decision came after state lender Caixa Econômica Federal this week offered carmakers and auto parts producers lower borrowing costs for some types of loans as long as they hold off on dismissing staff.
“We are very worried,” Abreu told Folha in the interview. “If there’s more unemployment, defaults will certainly grow.”
The measures revived concerns about a fresh round of state intervention in the banking industry, something Rousseff tried during her first term in office but rendered little dividends. Shares of Banco do Brasil sank 6.2 percent to a 17-month low on the news.
Abreu said in the interview that policy efforts in the wake of the global financial crisis of 2008, as opposed to now, did involve state banks and had a rather broad scope.
“This time there will be no abrupt increase in credit and, instead, a smoother one,” Abreu told Folha.
Economists expect Brazil’s gross domestic product to shrink in 2015 and next year, which would be the first consecutive annual contractions since the 1930s.
$1 = 2.4902 Brazilian reais Reporting by Guillermo Parra-Bernal; Editing by Lisa Von Ahn