Brazil Bank Stocks Fall After Reserve Levels Raised to Slow Credit Growth
Brazilian banks fell in Sao Paulo trading after the central bank raised reserve and capital requirements to slow consumer lending growth that’s running at 20 percent annually and prevent a credit bubble.
Banco Santander Brasil SA, the Brazilian unit of Spain’s biggest bank, declined 3.3 percent to 22.58 reais at the close of trading in Sao Paulo at 3 p.m. New York time. Banco do Brasil SA, Latin America’s biggest bank by assets, fell 2.7 percent to 32.60 reais. The benchmark Bovespa index gained 0.3 percent.
The central bank took into account the “solvency” of Brazil’s financial system when deciding to take today’s measures, said President Henrique Meirelles. The move is being made a month after Grupo Silvio Santos took a 2.5 billion reais ($1.5 billion) loan to bail out Banco Panamericano SA, the nation’s 21st largest by assets.
“The rapid expansion of credit levels in an economy may lead to the occurrence of excesses by economic agents,” Meirelles told reporters today in Brasilia. “This measure is prudential, therefore, reduces liquidity in the financial markets and inhibits the formation of non-sustainable trends, the bubbles.”
Reserve requirements on time deposits will rise to 20 percent from 15 percent and an additional requirement for non- interest bearing accounts will climb to 12 percent from 8 percent. The moves will remove 61 billion reais ($36 billion) from circulation, the central bank said today. Banks will also be required to use more capital to back consumer loans that exceed 24 months. The measures take effect Dec. 6.
“For banks this is definitely bad,” said Otavio Vieira, who helps manage 1.5 billion reais ($886.8 million) at Safdie Private Banking in Sao Paulo. “They’re going to have less capacity to concede credit.”
Banco Panamericano SA slipped 1.1 percent to 4.55 reais while rival Banco ABC Brasil SA tumbled 3.6 percent to 16.00 reais.
Outstanding consumer credit rose 1.8 percent in October from September, to a record 743.5 billion reais ($438 billion). Credit rose to a record 47.2 percent of gross domestic product, from 46.7 percent in September.
Brazil joins the People’s Bank of China in tightening policy to head off inflationary pressure as domestic demand expands. That contrasts with policies in developed nations, where the Federal Reserve, the European Central Bank and the Bank of Japan are buying assets to shore up their economic recoveries. Brazilian inflation is quickening as the economy grows at the fastest pace in more than two decades.
“It would be prudent to not dissociate these macro- prudential measures from conventional monetary policy actions,” Brazilian central bank President Henrique Meirelles told reporters in Brasilia. “They are complementary channels used in different situations.”
Meirelles said today’s measures will help slow inflation, prompting traders to reduce bets the central bank will raise interest rates this month for the first time since July from 10.75 percent.
The yield on the January 2011 contract, the most traded today, dropped 15.4 basis points, or 0.154 percentage point, to 10.685 percent.
Consumer price increases, as measured by the IPCA-15 index, accelerated to 5.47 percent in the year through mid-November, the highest since March 2009. Brazil targets inflation of 4.5 percent, plus or minus two percentage points.
Brazil’s retail sales expanded for a fifth straight month in September on record low unemployment and credit growth. Sales rose 0.4 percent in September from August, and were up 11.8 percent from a year earlier, beating the 11.1 percent median forecast of 30 economists surveyed by Bloomberg. Unemployment fell to 6.1 percent in October.
“Of course, this will raise the price of credit a little bit, but during this moment of expansion it is opportune,” Finance Minister Guido Mantega said, according to an audio file e-mailed by the ministry. “Credit has risen a lot lately, demand is at a satisfactory level. We have to avoid exaggerations, so the measures were very adequate.”
China has lifted reserve requirements five times this year, with the latest taking effect on Nov. 29. Turkey’s central bank said Nov. 29 that it may make “more active” use of reserve requirements to stem foreign currency inflows. Peru’s central bank has raised its benchmark lending rate five times this year and increased reserve requirements to prevent inflation from accelerating beyond the government’s target range.
Brazilian President-elect Dilma Rousseff, who takes office Jan. 1, will resort to all possible measures to contain inflation before lifting the overnight rate, Roberto Padovani, chief economist at Banco WestLB do Brasil SA in Sao Paulo, said.
Rousseff will rely on measures to reduce liquidity and to contain public spending before raising rates, Padovani said.
“There is a political demand for lower interest rates,” said Padovani, who expects Brazil’s next central bank president, Alexandre Tombini, to keep rates unchanged next year. “There is also a short term technical issue -- avoiding interest rate increases to avoid a further appreciation of the real.”
President Luiz Inacio Lula da Silva told reporters in Rio de Janeiro that he is “very worried” about the strength of the Brazilian real.
The real has more than doubled against the U.S. dollar since Lula took office in 2003, becoming the best performer amid the 16 most traded currencies tracked by Bloomberg. The real rose 0.6 percent to 1.6870 per U.S. dollar.
Brazil, the world’s eighth-largest economy, will expand 7.55 percent this year, according to a central bank survey of about 100 economists published Nov. 29.
The same survey showed that economists expect the central bank to raise the benchmark interest rate by 150 basis points, or 1.5 percentage points, next year, starting with a 50 basis point increase in April.
“Although these are prudential measures in nature, one can affirm with a reasonable degree of certainty that they will have macroeconomic implications, having an impact on the credit market in its quantitative dimension and also via prices,” Meirelles said.
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