Brazil's central bank BCB has again reduced reserve requirements in an effort to improve liquidity for small and mid-size banks, BCB said in a statement.
Financial institutions can use up to 40% of their reserve requirements on time deposits to take on other banks' loan portfolios, BCB said. Only banks with equity of up to 2.5bn reais (US$1.27bn) can sell their loans through the rule change.
The measure could free up as much as 23.5bn reais for additional credit, local press reported.
Both midsize and big banks could benefit, as the smaller banks gain liquidity and big banks can take their money out of the BCB's low-yielding required reserve accounts, Deutche Bank (NYSE: DB) equity analyst Mario Pierry wrote in a report on the change.
"Unibanco [NYSE: UBB] should benefit the most given its higher dependence on time deposits for funding, followed by Bradesco [NYSE: BBD], Banco do Brasil (BB) and Itaú [NYSE: ITU]," Pierry wrote.
Additionally, this may signal that the BCB may be ready to relax of reserves requirements in a more systematic way, the report said.
"We believe that if market conditions continue to deteriorate at a rapid pace, the BCB could eventually reduce reserve requirements on demand deposits, currently at 53%," Pierry wrote.
Henrique Meirelles, BCB president, said that the country's credit system is generally stable, but that the bank would take limited action where necessary, in interviews with local press.
"BCB will not take measures due to a psychological reaction, in response to anxiety or worries that things are happening in other markets," local publication A Tarde quoted the BCB president as saying.
President Luiz Inácio Lula da Silva again instructed economic officials to protect growth, saying consumers and businesses should not lack credit, local press said.
Last month, the international financial crisis prompted BCB to postpone increasing the reserve requirements on leasing and upped the amount banks can deduct from their reserve requirements on time deposits, savings deposits and demand deposits to 300mn reais from 100mn reais.
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