The country's banking hierarchy is likely to remain untouched as Brazil's large banks battle it out to buy smaller banks' loan portfolios after a recent central bank BCB rule change, Milena Zaniboni, head of corporate and government ratings for S&P Brasil, told BNamericas.
"We don't expect these volumes to be material enough to alter the credit profile of the larger banks," she said, mentioning that the so-called niche banks' share of the total credit portfolio was close to 6% of the total at end-June.
Brazil's total loan portfolio was up 31.8% in the 12 months ending in August to 1.11tn reais (US$505bn), according to the latest figures from BCB.
In fact, the practice by mid-size banks of selling assets to gain liquidity was only incentivized by BCB as it had been in place earlier.
"We have to remember the sale of asset portfolios has been a common option for funding for niche banks, as I said, directly to other banks, even with long-term operational agreements and [receivables investment funds] FIDCs," she said.
Perhaps the biggest mystery of the recent purchases has been which banks are doing the selling now.
Only banks buying assets have made announcements, citing confidentiality agreements on the names of their sellers, which likely wish to remain anonymous for fear of appearing financially troubled in the current international crisis.
"The ones that used this instrument in the past are likely to continue using it," Zaniboni said.
Another question has been why payroll-linked loan books have made up nearly all of the purchases with just a few corporate and auto-financing loan books being traded.
"The good quality and rather normal level of risk of this [payroll-linked] portfolio have contributed greatly to its liquidity and will make it an important source of funding as soon as larger banks return to the market and start buying assets," she said.
In announcing its purchase of 4.7bn reais in loans from smaller banks on Friday including payroll-linked and corporate credit, federal savings bank Caixa Econômica Federal (CEF) also cited the low risk of these segments, Agência Estado reported.
WHY MID-SIZE BANKS NEED LIQUIDITY
The reason mid-size banks are more actively seeking liquidity than larger Brazilian banks stems from differences in their deposit bases, Osias Brito executive VP of local mid-size bank Banco Fibra, told BNamericas.
"Larger banks take more stable deposits through individuals and more long-term deposits than smaller banks," he said. "Smaller banks base their deposits on institutional and corporate and those companies need the money to stay alive and maintain their responsibilities."
Returning to this practice of selling high-quality assets in the current market conditions may give mid-size banks that liquidity.
"Given the long-term profile of the [payroll-linked] loans and the rather standardized risk, niche banks have always felt the sale of the portfolio was an appropriate alternative to shorter-term deposits," Zaniboni of S&P said.
Banco Fibra has not sold any of its loan portfolios in the current crisis after tapping international markets to the tune of US$700mn since November, Brito said.
"I do not see any trouble with any [particular] mid-size bank, but as time goes by and the crisis [persists], you will probably have trouble at one of these banks," he said.
Spain's Santander (NYSE: STD), Bradesco (NYSE: BBD), Itaú (NYSE: ITU), Unibanco (NYSE: UBB), Banco do Brasil (BB), and Nossa Caixa have now all purchased loan books after BCB began allowing banks to use central bank reserve requirements on time deposits to take on other banks' loan portfolios in early October.
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