Brazilian banks will need to increase provisions set aside for losses on loans to Odebrecht SA after its chief executive officer was arrested Friday, people familiar with Brazil accounting requirements said.
Odebrecht, owner of the biggest construction company in Latin America, had net debt of 63.3 billion reais ($20 billion) as of December, according to its financial statements. About 25 percent is owed to local Brazilian lenders and 13 percent to foreign banks, according to the Salvador-based company.
Those lenders need to adjust their accounts to reflect higher risk after the arrest, the people said, asking not to be identified discussing internal bank matters.
Federal police said Friday that CEO Marcelo Odebrecht was detained as part of a probe into allegations that construction companies paid bribes to the state-run oil producer, Petroleo Brasileiro SA. It was a surprise turn for a builder that had avoided the defaults and bankruptcies that hit smaller rivals.
Odebrecht’s construction unit said in an e-mail Friday that its offices had been searched and arrest warrants executed. Detentions weren’t necessary because the company and its executives have cooperated with the investigation, it said.