Banco Santander Brasil SA (SANB11), the Brazilian unit of Spain’s biggest bank, is in talks to form a joint venture with Banco Bonsucesso SA to expand in payroll loans, a person with direct knowledge of the matter said.
The two banks are negotiating a non-cash transaction in which Sao Paulo-based Santander Brasil would get a majority stake in the new firm, said the person, who asked not to be identified because the discussions are private.
A deal would help Santander Brasil revive its flagging payroll-lending business while providing Bonsucesso with access to funds for growth. Santander Brasil’s portfolio of loans backed by automatic payroll deductions fell 15 percent to 12.8 billion reais ($5.7 billion) in the year through March, compared with an increase of 52 percent, to 24.7 billion reais, at Itau Unibanco Holding SA, the nation’s largest bank by market value.
Santander declined to comment on the talks, which were previously reported by the Brazilian magazine Veja. Bonsucesso didn’t immediately respond to calls and e-mails seeking comment.
The transaction would resemble a 2012 joint venture that Itau struck with Banco BMG SA, according to the person. In that deal, the new firm had 1 billion reais in capital, with Itau contributing 70 percent and BMG accounting for the rest. Itau also agreed to provide unlimited funding for payroll lending to the joint venture, plus 300 million reais a month directly to BMG over five years to finance its payroll loans.
BMG’s joint venture helped propel earnings and lower funding costs for the Belo Horizonte-based bank.
Bonsucesso’s net income rose to 16.7 million reais in the first quarter, compared with a loss of 2.1 million reais a year earlier, according its website. The book value of its total equity climbed to 402.5 million reais from 374.6 million reais in the same period.
Payroll loans deliver safer returns than traditional lending because interest and principal are deducted directly from borrowers’ paychecks.
Payments more than 90 days late accounted for 2.6 percent of the total outstanding in April, the same as in the four previous months and down from 2.7 percent a year earlier, central bank data show. That compares with 6.9 percent in April for consumer loans excluding payroll lending, down from 8.2 percent a year earlier.
The average rate banks charge for the loans climbed 1 percentage point to 25.3 percent in April from a year earlier, according to the central bank, a smaller jump than the 3.75 percentage-point increase in Brazil’s Selic (BZSTSETA) benchmark rate.