The Central Bank presented this week measures designed to protect and ensure the financial and exchange stability of the Brazilian financial system from the effects of the pandemic caused by Covid-19.
The measures described below are mainly aimed at maintaining the functionality of the financial market in order to (i) keep the banking system liquid and stable; (ii) ensure a capitalized system in order to keep the credit channel in operation; (iii) offer special conditions for banks to roll over the debts of the affected sectors; and (iv) ensure the normality of the foreign exchange market; among others.
The new measures presented by the Central Bank
New time deposit with special guarantees - NDPGE (Resolutionno. 4,785, of March 23, 2020)
According to the presentation made by the Central Bank, this is a measure also adopted during the 2008 crisis, in which banks will be able to increase their funding with the guarantee of the Credit Guarantee Fund by one time their net worth, limited to R$ 2 billion.
- Additional release of compulsory deposits (Circular 3,993 of March 23, 2020)
The Central Bank presented the reduction of the term resources rate from 25% to 17%, as another measure to release liquidity.
- Easing of rules on Agribusiness Letters of Credit - LCA (Resolution 4,787, of March 23, 2020)
To better direct the funds raised in LCAs, the calculation basis was adjusted. The relaxation of the 100% backing percentage in funding and the reinvestment of the amount raised in related activities aim to facilitate agribusiness credit, generating greater credit and liquidity potential for the financial system.
Loans with private debt securities equivalency (ResolutionNo. 4,786, of March 23, 2020 and CircularNo. 4,876, of March 24, 2020)
The purpose of this resolution is to allow the granting of loans backed by debentures and guaranteed by compulsory deposits. The loans are conditioned to the presentation of eligible assets pledged in favor of the Central Bank prior to the contracting of the loan, for purposes of calculating the financial limit of each loan operation.
According to the press conference given by the president of the Central Bank, this measure impacts investment funds that have invested in debentures and aims to ensure that this market remains liquid.
- Increase in the buyback limit for own-issued financial bills (Resolution 4,788 of March 23, 2020)
Allowing banks (S1) to increase their volume of repurchase of own-issued financial bills from 5% to 20%.
Measures implemented before 23.03.2020 by the Central Bank
The Central Bank has already adopted some initial measures to address the crisis, such as:
- Exemption for banks and cooperatives from increasing the provisioning in case of renegotiation, for 6 months (Resolution nº 4,782, of March 16, 2020)
The measure aims to facilitate the renegotiation of corporate and household credits for the purpose of maintaining ongoing credit operations, allowing cash flow adjustments.
- Reduction of the Additional Principal Capital Conservation (Resolution No. 4,783, of March 16, 2020)
In order to provide liquidity and insert capital to the system, the additional core capital was reduced from 2.5% to 1.25% for a period of one year (for all banks), with gradual reversion until March 2022. This measure aims at improving the conditions for eventual renegotiations, maintaining the flow of credit granting and giving security to banks to maintain and expand their credit granting plans.
- Resumption of purchase operations with sale commitment (repo) of Brazilian sovereign securities denominated in dollars (Circular No. 3,990, of March 18, 2020 and Communiqué No. 35,406, of March 24, 2020)
The objective of this measure is to provide liquidity to the Brazilian sovereign bond market, contributing to reduce the volatility of this market, while providing dollar liquidity to domestic banks.
The President of the Central Bank emphasized in his presentation that although this crisis is different from previous ones, the Central Bank is attentive to the economic scenario and willing to adopt new measures if necessary.
To access the full presentation made by the President of the Central Bank, click here.
The Financial and Capital Markets team is available for any clarifications and/or additional information by means of the e-mail [email protected]
