(Recasts adding details on shadow banking system, Petrobras)
By Guillermo Parra-Bernal and Marcela Ayres
SAO PAULO/BRASILIA, March 19 (Reuters) - Brazil’s shadow banks do not pose an immediate risk to the stability of the country’s banking system, which has an adequate capital cushion to cope with unexpected shocks, a central bank report released on Thursday showed.
In its bi-annual financial stability report, the central bank noted that 0.6 percent of the banking system’s financial assets are in the hands of shadow banks, or financial firms that provide services similar to traditional commercial lenders but are not subject to traditional regulatory oversight.
Shadow banks could only pose a risk for Brazilian lenders through indirect, market-related channels, the report noted. For instance, contagion onto the traditional financial system could come from “not-irrelevant” share of corporate securities that shadow banks own in Brazil, the report noted.
“While no risks to financial stability stemming from shadow banking have been identified so far, the central bank and the CVM are working themselves to learn more about this subject and fine-tune risk assessment tools,” the report added.
Brazil’s shadow banking system has combined assets of about 382 billion reais ($116 billion), according to estimates by the central bank and securities industry watchdog CVM, excluding firms and financial intermediaries that fail to comply with Financial Stability Board guidance.
The unregulated, informal web of financial firms that are known as shadow banks became a key source of credit for millions of people who for years have had no access to formal loans.
The FSB estimates the size of shadow banking globally at $64 billion. In China, for example, estimates of the size of shadow banking assets range from $1.5 trillion to $6 trillion - raising questions over the sustainability of that sector.
Oversight of off-balance-sheet structures in the traditional banking system has an ample scope that so far has mitigated risk-taking and the impact of potential fallout, the report added.
Brazil’s traditional banking system faces low liquidity-related risks and solvency measures remain elevated across commercial lenders, it said.
Policymakers are also monitoring the impact that a corruption scandal involving state-controlled oil producer Petróleo Brasileiro SA and some of the nation’s largest engineering firms could pose for commercial banks, central bank Director Anthero Meirelles said in Brasilia.
Banks lent billions of reais to Petrobras, Brazil’s most indebted company, and the contractors, many under investigation, that built some key company projects. So far, it is difficult to assess the damage the scandal has had on banks’ balance sheets, Meirelles said. (Editing by Chizu Nomiyama and Alan Crosby)