Brazil’s Banks Ramp Up Bid to Halt Torrent of Bankruptcy Filings

  • Itau, Santander create teams focused on debt restructurings
  • Brazil’s recession has triggered a surge in bankruptcies

Some of Brazil’s biggest banks are stepping up efforts to stem a surge in bankruptcy filings.

In the past year, Itau Unibanco Holding SA, Banco do Brasil SA and Banco Santander Brasil SA have carved out divisions tasked with helping companies restructure their debts so they can avoid seeking protection from creditors. Banco Bradesco SA also is planning to create a similar unit, according to a company official who asked not to be identified because the information is private.

The moves come as high interest rates and Brazil’s longest recession in more than a century make it harder for businesses to repay debt. In the first half of 2016, bankruptcy filings spiked 88 percent to a 10-year high, according to Serasa Experian. That’s meant banks have had to write down the loans they’ve made to those companies and increase the amount of money they set aside to cover losses.

Brazilian lenders have ratcheted up their so-called bad-loan provisions for three straight quarters. They were equal to 6.2 percent of banks’ total lending in May, the highest ratio in almost six years, according to Brazil’s central bank.

“Large banks are devoting more people and resources to workout areas to discuss more creative solutions,” said Luis De Lucio, a managing director at restructuring adviser firm Alvarez & Marsal Inc. 

Brasilia-based Banco do Brasil segregated some of its staff from the commercial and credit areas last year to deal exclusively with businesses they identified as more likely to become delinquent.

“We noted there were more clients with struggling finances, and we decided it was necessary to have deeper talks with them,” said Walter Malieni, head of risk management. “This has helped reduce delinquency rates and provisions.”

Sao Paulo-based Itau assembled its team of bankers who specialize in debt restructurings this year. Banco Santander Brasil, also based in Sao Paulo, formed its unit in 2015. It’s part of the lender’s corporate banking division, with the staff reallocated from other departments.

Press officials at Bradesco, Santander and Itau declined to comment on the size of their respective debt-restructuring units.

The expansion of these areas “accelerated the process of renegotiating loans with banks, and now I think proceedings are getting faster and more efficient,” said Renato Carvalho, founding partner at Laplace Financas, a Sao Paulo-based financial services firm with 10 billion reais under management.

The real fell 0.9 percent to 3.2860 per dollar on Monday.

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