06-06-2012 16:56 Brazil
Brazil's central bank seizes a consumer lending bank for violations
BRASILIA, (NNN-MERCOPRESS) - Brazil’s easy money policies have squeezed yet another of its banking weaklings.
The country’s Central bank seized consumer lender Banco Cruzeiro do Sul for “serious” financial violations. The episode serves as another example of a bank losing its way in Brazil’s lending frenzy, local media reported.
The Brazilian economy still looks pretty sound overall. Unemployment is not rising and household debt, at 49% of income, is better than that of the United States, for example, sources said.
But thanks in part to government spending and monetary easing, loans are still growing at an alarming rate of 20% a year – five percentage points higher than in China. And non-performing consumer loans rose nearly one percentage point to 7.8% last year.
The big four banks seem to be managing this okay. It’s the mid-size lenders who appear to have gotten ahead of themselves. True, Brazilian press reports that Cruzeiro’s US$637 million loss may have been the result of fraud adds a new wrinkle. But it looks like a badly run bank, regardless.
Its problem loans jumped six-fold in 2011 to 2.9% of all loans – far faster than giant Itau Unibanco’s, which rose by around a tenth.
And along with other mid-size lenders in Brazil – and many global finance houses in the run-up to the 2007-08 crisis – Cruzeiro was too reliant on less stable forms of funding. It met a quarter of its needs last year by selling loans into the securitisation market. Another 25% came from selling debt to international investors.
As its funding options diminished, Cruzeiro was forced last Oct to tap the central bank for a US$1.7 billion emergency line of credit, backed by loans. That’s almost a third of its total assets.
Cruzeiro’s decline continued, so the Central bank tried to broker a sale to billionaire Andre Esteves BTG Pactual. But Mr. Esteves, who bought troubled Banco PanAmericano in Jan, 2011, begged off last week.
For now, Cruzeiro do Sul is being administered by the FGC, Brazil’s deposit insurance fund. Like its US counterpart, the FDIC, it is funded by levies on banks. But it had to plough US$5 billion into bailing out three other lenders that failed in the past 18 months. If these banks’ woes spread be it through fraud or not, the FGC could find itself a lot busier, sources said.