Brazilian Banks May Fall as Central Bank Requires More Reserves

By Heloiza Canassa and Telma Marotto

Feb. 1 (Bloomberg) -- Brazilian banks may decline after the central bank demanded they reserve as much as 25 percent of leasing companies' interbank deposits.
Banks operating in the country will have to make compulsory deposits in an account with the central bank, according to a statement released last night in Brasilia. They will be held in government bonds. The central bank said the measure is a bid to control inflation by tightening credit.
``At first, the market may see it as negative news,'' said Mauro Cunha, investment director and partner of Maua Investimentos, which has more than $1.3 billion under management. ``The central bank was very sharp because it hits one of the banks' fastest-growing lending segments.''
Leasing companies sold about 71 percent of 46.5 billion reais ($26.5 billion) of domestic bonds sold in Brazil in 2007 to finance the purchase of cars and other durable goods, amid falling interest rates and rising income, according to the securities regulator.
Brazil's state and non-state bank lending rose 27.3 percent to 932.3 billion reais in December 2007 from 732.6 billion reais a year earlier, the central bank said in January. That's the biggest annual increase since 1995, according to Bloomberg data.
``The central bank is closing a fundraising window that was favorable and cheap for banks,'' said Regis de Abreu, who helps manage about 2 billion reais in assets at Mercatto Gestao de Recursos in Rio de Janeiro. ``Stocks will be hit by that. The immediate impact is an increase in financing costs.''
The banks are required to make deposits from May this year at a rate of 5 percent and will reach 25 percent in January, 2009. The central bank says financial institutions held 160 billion reais of leasing interbank deposits in November 2007. It said the measure was to provide equal treatment for leasing companies' deposits and term deposits.
The bank's policy board said in a statement released yesterday that it is ready to ``use monetary policy instruments'' to control inflation, instead of raising interest rates.