(Adds more measures, central bank president quotes)
By Marcela Ayres
BRASILIA, March 23 (Reuters) – Brazil’s central bank on Monday said it planned to inject 1.2 trillion reais ($233.81 billion) into the country’s financial system to counteract the effects of the coronavirus outbreak, with more than half that amount comprising loans to banks.
Under the program, lenders will be able to package their loan portfolios into long-term deposits to be acquired by the central bank in a move aimed at freeing up 670 billion reais for fresh loans.
The bank loans are part of a raft of steps the Brazilian central bank announced aimed at keeping consumers and companies borrowing amid the coronavirus outbreak that it said would collectively make available the equivalent of 16.7% of Brazil’s gross domestic product in fresh cash.
“This is the biggest liquidity injection ever announced by the central bank,” Central bank President Roberto Campos Neto said in a conference call with reporters. “We understand that the acquisition of long-term deposits backed by banks’ loans will allow money to get to companies.”
New regulations governing the letters of credit backed by loans will be released soon, Campos Neto added.
Shares in Brazil’s biggest lenders were underperforming the Bovespa stock exchange index, amid concerns on credit deliquencies amid the coronavirus outbreak, with shares in Itau Unibanco Holdings SA and Banco Bradesco SA down 8% and Banco do Brasil SA losing 9%.
The central bank also cut long-term reserve requirements to 17% from 25%, freeing up 68 billion reais currently in compulsory deposits with the central bank to banks.
It also announced measures allowing small and mid-sized lenders to issue up to 2 billion reais in special long-term bonds guaranteed by a privately held deposit insurance fund, limited to an amount equivalent to its shareholders’ equity.
The central bank estimates the measure will allow banks to extend up to 200 billion reais in new loans.
The central bank said it will also extend loans backed by corporate bonds to financial institutions between March 23 and April 30 to add liquidity to their investment funds.
The Brazilian central bank last week allowed lenders to offer firms and households in good financial shape increased loans and better terms over the next six months, besides lowering capital requirements.
Campos Neto added the central bank may further lower reserve requirements and announce other additional measures if necessary. ($1 = 5.1323 reais) (Reporting by Marcela Ayres, writing by Carolina Mandl; Editing by Toby Chopra and Alistair Bell)
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