BTG Sees Shot at Brazil Loan Growth as Government Banks Retreat

  • Better credit quality also whets appetite, vice chairman says
  • BNDES, Banco do Brasil, Caixa are shrinking balance sheets

Brazil’s state-owned banks are retrenching, and Banco BTG Pactual wants to pick up the slack.

“The opportunity for us in the credit market is very attractive,” BTG Vice Chairman Huw Jenkins said in an interview at the World Economic Forum in Davos, citing shrinking balance sheets at BNDES, Banco do Brasil SA and Caixa Economica Federal.

Lending at government-owned banks fell 7 percent to a combined 1.67 trillion reais ($525 billion) in December from a record high in January 2016, according to central-bank data, as Brazil President Michael Temer tries to reduce the nation’s fiscal deficit by easing the lenders’ capital needs. Their market share slipped to 54 percent of total credit from 56 percent over the same period.

Free Falling

Combined loan portfolio of Brazil's government-owned banks

Source: Brazil's central bank

Falling interest rates in Latin America’s biggest economy also mean BTG can extend more credit as corporations’ debt-servicing capacity improves and the economic recovery stimulates demand for basic capital expenditures, Jenkins said.

“If you look at foreign direct investment coming into Brazil and our M&A pipeline, there is a huge amount of interest in acquiring Brazilian assets," he said, adding that “real estate prices haven’t moved at all, so compared to the S&P and other markets, Brazil is still very attractive."

High Quality

BTG will keep its focus on “more complex, secured, medium-term corporate financing,” Jenkins said. “We still see strong credit opportunities where we could extend loans on good margins to very high-quality projects and companies.”

BTG’s lending business is mostly focused on companies looking to boost capacity, spend on infrastructure or pursue mergers, rather than meeting needs for working capital or regular unsecured corporate finance, according to Jenkins.

BTG’s corporate-loan portfolio climbed 5.9 percent to 21.6 billion reais in the third quarter from a year earlier. Nationwide, total loans outstanding in Brazil are down 4 percent from their peak in December 2015, to 3.09 trillion last month, the central bank data show.

The bank is also planning to expand its global hedge fund business, aiming to get its flagship Global Emerging Markets and Macro Fund up to about $2 billion in assets. That compares with $1.2 billion for the firm’s entire pool of hedge fund assets under management. BTG declined to break out the current total for GEMM alone.

— With assistance by Ney Hayashi Cruz

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