SAO PAULO, May 11 (Reuters) - Smaller corporate lenders are better positioned to weather Brazil’s worst recession in decades, but need to be monitored closely as clients grapple with soaring defaults and bankruptcy filings, the head of the nation’s deposit guarantee fund said.
Banks in the so-called middle-market segment have tightened loan disbursement standards and scaled down the use of borrowed money to boost lending, although they are struggling to predict defaults, which recently hit a six-year high.
“Differently from prior crises, small- and mid-sized banks were not caught by surprise, they are less leveraged,” André Loes, president of São Paulo-based FGC, told Reuters in an interview earlier this week.
He added that both the central bank, which oversees the banking industry, and FGC, which has 48 billion reais ($13.9 billion) in assets through compulsory contributions from banks, are better equipped now to deal with problems.
But rising defaults among small factories and retailers have yet to “ring warning bells,” said Loes, a former chief Brazil economist for HSBC Holdings Plc and Banco Santander Brasil SA.
Brazil’s central bank said in a recent report that banks, especially those that lack access to fundraising and a stable stream of fee-based revenues, were struggling to gain visibility on default trends in Latin America’s largest economy.
FGC, which helped rescue more than two dozen banks during the 2007-2009 global financial crisis, has sped up changes to its governance rules in the past three years in a bid to broaden its role from solely that of a guarantor for deposits in failed banks.
The FGC’s new responsibilities include taking a more pro-active role in trying to avert bank failures by providing cash-strapped lenders quick financing.
$1 = 3.4647 Brazilian reais Writing by Guillermo Parra-Bernal; Editing by Paul Simao