BRASILIA, Nov 5 (Reuters) - Brazil state development bank BNDES may be forced to scale back loans in coming months if the government fails to inject up to 30 billion reais ($12 billion) into the lender as early as this year, a senior bank official with knowledge of the matter said on Wednesday.
BNDES, which is Brazil’s main source of corporate financing, is discussing terms of a potential capital injection with the government, the official said. Another source with knowledge of the government’s thinking told Reuters last week that part of the money could be released before year-end.
While fresh cash would bolster the bank’s capital and ramp up its ability to extend more loans to large and small companies, the move would further erode public finances at a time when newly re-elected President Dilma Rousseff is under pressure to cut spending to regain the trust of investors.
Without the capital injection, BNDES could be forced to “withhold a significant amount of disbursements in the short term,” said the official, who is not allowed to speak publicly about the matter. “The 30 billion reais figure is under consideration, but there is no certainty the amount will be released.”
The government has acknowledged the strains that BNDES lending has caused on its finances but Rousseff is wary of reducing its role in a economy that fell into recession earlier this year. On Rousseff’s watch, it has lent over 570 billion reais ($233 billion) at subsidized rates funded mainly by government bond sales, sparking a jump in debt.
Credit rating agencies have warned they could downgrade Brazil as early as next year and are closely looking at whether a smaller role for BNDES will be among Rousseff’s policy shifts in her second term, which begins in January.
The official acknowledged the bank will have to seek more funding with interest rates closer to what the market offers to reduce the government’s fiscal burden in the future.
“In the long term, the bank will have to make adjustments to its operational policies to use more funding at market prices,” the official said.
The gap between the interest rate Brazil pays investors in order to fund BNDES and what the bank pays for that support has reached 6.25 percent, costing taxpayers 35 billion reais a year, and is expected to widen over the next year. (1 U.S. dollar = 2.5095 Brazilian real) (Additional reporting by Guillermo Parra-Bernal in São Paulo; Editing by Jeffrey Benkoe)