BNDES, Caixa and BB: what will be the role of public banks in the new Lula government

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New presidents of state-owned financial institutions talk about balancing the commercial and social functions of banks, but signs from the government still raise doubts among financial market agents about plans and consequences for the credit market. Lula announces Mercadante as the future president of the BNDES. Ueslei Marcelino/Reuters The role of public banks in the third term of Luiz Inácio Lula da Silva (PT) has returned to the spotlight since the election campaign. The first projects thought up by the federal government came to light last week, although the details remain superficial. On a visit to Buenos Aires, alongside his Argentine colleague Alberto Fernández, the president stated that the National Bank for Economic and Social Development (BNDES) will once again finance projects in partner countries. The measure is among the factors widely criticized in the bank’s performance in the past, since allies failed to pay off parts of the loans granted and for the deviation from the bank’s initial function, of “long-term financing and investment in the various segments of the Brazilian economy” — the definition is as written on the BNDES website. “The BNDES will once again finance Brazil’s trade relations and will once again finance engineering projects to help Brazilian companies abroad and to help neighboring countries grow and even sell the result of this enrichment to a country like Brazil. Brazil cannot stay away. Brazil cannot become small”, said Lula. Lula says that BNDES will finance projects in neighboring countries again The PT believes that Brazilian companies can benefit from providing services for international projects financed by BNDES. Lula also criticized the “downsizing” of the bank, which reduced its credit portfolio since former president Dilma Rousseff (PT) was impeached in 2016. In 2013, the year of greatest disbursement, the bank granted more than R$190 billion in loans. Already in 2021, the last closed year statistic, it was R$ 64 billion. Lula criticized the performance. “All BNDES money is turned to the Treasury, which wants to receive the loan that was made. So, Brazil also stopped growing, Brazil stopped developing and Brazil stopped sharing the possibility of growth with other countries”, said the president. This possible turnaround in BNDES management is a matter of concern for financial agents due to the potential for a mismatch in the credit market and the bank’s own health. For Sérgio Lazzarini, professor at Western University and senior researcher at Insper, the bank should follow the opposite path to that indicated by Lula and continue to reinforce its trajectory of support for smaller and more credit-restricted companies, in addition to projects with greater social and environmental impact. “At a time of fiscal adjustment and the need to adjust the state apparatus to provide greater impact for Brazil, the return to this mechanism for financing external works carried out by large companies is far from being a priority”, says Lazzarini. This was even the path indicated by Aloizio Mercadante when he was nominated for the position of president of the BNDES. In addition to promising a balanced role between the Treasury and the bank, the new president said he intends to focus on projects to reindustrialize the country, and encourage a green economy and sustainability. From Bolle: BNDES investment in ‘Vaca Muerta’ may be of interest to Brazil The change at BNDES In his speech in Argentina, Lula criticized the conduct of BNDES during Bolsonaro’s administration, but the bank’s ‘decrease’ was introduced from Maria’s management Silvia Bastos Marques, president of the BNDES during the government of Michel Temer (MDB). The successors, Joaquim Levy and Gustavo Montezano, deepened the strategy. In the years of Maria Silvia’s management, the bank focused on reorganizing the loan portfolio to take weight off the National Treasury and abandon once and for all the old policy of “national champions”. In the 2010s, the BNDES served as a mechanism for releasing credit below market rates for large companies that showed expansion and job generation projects to become a reference in their sectors and compete on a global scale. The president of the National Bank (BNDES), Maria Silvia Bastos, at an event in Rio this Monday (24) Daniel Silveira/G1 Companies such as Oi, JBS and Odebrecht (today, Novonor) enjoyed this moment and became powerhouses with money borrowed at low cost – sometimes half the current Selic rate. To provide the subsidy, the BNDES relied on money from the National Treasury to cover the difference. Without a good process for monitoring results, credit had little efficiency for the development of companies while it created a debt that reached a peak of R$ 487 billion with the Treasury in 2015. creation of the TLP (Long Term Rate), which eliminated subsidized rates for new loans, and a sequence of cash returns to the Treasury. Today, of the nearly R$500 billion, there is still R$24 billion to be returned, according to the BNDES itself. “There was a view that the subsidy would generate investment and the investment itself would pay that bill. Did not happen. And, another worrying factor is that there was inattention to the assessment of the impact of these loans”, recalls Lazzarini. Interview with Aloizio Mercadante For the economist, the development bank does not need to be the size it was in 2010, but focus on projects that are difficult to finance, cases of basic sanitation, modernization of industrial plants and innovation entrepreneurship, for example. “It maintains market rates, lets large companies finance themselves through the capital market — through the stock exchange, through debentures, etc. — and subsidizes social and environmental projects,” concludes Lazzarini. The bank’s new management recognizes that the space in the public accounts to pull an incentive in the same format as the first PT governments no longer exists. Attention to small and medium-sized companies even came from the results of academic studies — part of which Lazzarini himself signs — which show that the effects of loans to national champions brought little or no return. In an interview with g1, former Minister of Finance Nelson Barbosa — current director of Strategic Planning, Sanitation, Transport and Logistics and Energy at the BNDES — says that the bank’s new challenges involve structuring long-term financing policies in addition to to the financial market, guarantee the raising of resources inside and outside the country and create new rates that are more adequate to the different types of projects in which the bank is involved. “There is a very large demand for repressed investment and the BNDES can play an important role in this, along with other institutions. Always in addition to market financial sources. And who knows, maybe even acting to further develop long-term market alternatives,” says Barbosa. The economist also says that the new government does not want to resume the size of the bank in the times of national champions, but does not work with a “specific size”. Barbosa says, however, that the last pre-pandemic years were marked by an excessive reduction in the performance of the BNDES and that this will be reversed with due care. “The BNDES can — and must — expand its operations in a sustainable manner from a fiscal point of view. The bank has already been doing this with micro and small companies and can do more in the area of ​​infrastructure, mainly with a focus on reindustrialization”, he says. “We will do this on a sustainable basis, capturing the market rate, using the space that the BNDES has to finance in addition to the private sector.” Former Minister of Finance Nelson Barbosa is now Director of Strategic Planning, Sanitation, Transport and Logistics and Energy at BNDES. Marcelo Camargo/Agência Brasil Caixa and BB At the other end, the expectation of market agents regarding the so-called “commercial banks” under state control is of some caution, although without major surprises. Both Banco do Brasil and Caixa Econômica Federal had technical nominations for the presidency: two women and career employees of the institutions. Tarciana Medeiros, the new president of BB, said that her commitment will be to deliver a profitable and solid bank, which reconciles commercial and public activities. “Sustainable results for shareholders and relevant to people’s lives, contributing to the development of the country”, she promised. The executive defined as a priority the promotion of credit — especially rural credit, but in a judicious way —, support for family farming, entrepreneurship, digital transformation, among others. Lula and Tarciana Medeiros, new president of BB Adriano Machado/Reuters Rita Serrano, new president of Caixa, also made a point of reinforcing that she will seek profitability from the business with “balance between commercial operations and inclusion actions”. In addition, he spoke of fulfilling “with excellence” the management of the government’s income transfer programs and Minha Casa Minha Vida, expanding the partnership with states and municipalities for the development of infrastructure projects, promoting the banking inclusion of the population and advancing in technology to provide better services and customer care. Details are still lacking, but the two banks should be used in the “Desenrola” program, Lula’s campaign promise to renegotiate debts. Minister Fernando Haddad says that the model is ready and agreed with BB, Caixa and the Brazilian Federation of Banks (Febraban). The launch should take place in the next few days. “Projects with a social return, which justify government intervention, can be carried out using subsidized interest rates or credit guarantees, but a broader plan is needed to make credit cheaper in Brazil”, says Roberto Luís Troster, former chief economist at February. Troster recalls that, today, public and private bank rates for the general public are similar, and a change in bank policies would be in order to make credit cheaper as a whole. “The BC needs to create more interesting rules, such as taxing credit, releasing reserve requirements, etc.” The president of Cixa Rita Serrano Fátima Meira/Futura Press/Estadão Alexandre Albuquerque, Moody’s analyst for the banking sector, expects BB and Caixa to act strongly in the supply of credit, but in a way that they should not escape from sectors dominated by banks . “It is clearer that there is a tendency for leverage to increase and the quality of banking assets to deteriorate, but in a controlled manner,” he says. “In recent years, there has been an improvement in the credit profile of banks, along with a better capitalization level than in the past. So, there is more room for growth”, says Albuquerque. The analyst also bets that the last few years have brought a great evolution in corporate governance, especially at BB, which has shares listed on the stock exchange. This includes strengthening internal practices, committees and work standards. “An increase in defaults is already foreseen for the entire sector, due to the economic scenario and high interest rates. The important thing is that there is no forced reduction in the rates of public banks and that they focus on the credit portfolio: Caixa in housing and BB in agribusiness, for example”, he says. Sought, Banco do Brasil said that it had no spokesperson available until last Friday and, this week, it would enter a period of silence for the disclosure of the results of the fourth quarter of 2022 – a rule imposed on publicly traded companies. Febraban denied an interview request. Caixa Econômica Federal did not respond to the report’s contact.

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