Banks will increase infra lending to substitute BNDES in Brazil
Fitch Ratings said on September 30th that private local banks and investors are expected to assume larger roles in financing Brazil's growing infrastructure needs as government-sponsored lending sources may face limitations under any newly elected government.
According to Ficth, this shift towards more private bank and capital markets financing comes as Brazil's government-sponsored Banco Nacional de Desenvolvimento Economico e Social (BNDES) reduces the speed of financing infrastructure projects.
BNDES has long been a key competitor to Brazil's private banks, which have not been able to compete with BNDES's below-market rates for infrastructure projects.
Brazil's private banks infrastructure financing exposure had represented about 12%-17% of the total loan portfolio. This exposure has been mostly letters of credit, guarantees, and bridge-loans, but not direct lending.
Fitch Ratings reported in a statement:
Tackling government spending is expected to be a key agenda item for new leaders following Brazil's elections. We believe that a scenario of lower government expenditures could eventually lead BNDES to expand its infrastructure credit at a slower pace in the long term. Market estimates for infrastructure funding needs over the next three to four years are vast, reaching upwards of BRL 1 trillion, primarily in energy, telecommunications, railways and roads. Given the high financing need relative to the bank's modest returns and existing capitalization, we see the BNDES as having a more constrained credit appetite for projects over the medium to long term.
Fitch also said that among the challenges facing private banks as they assume a larger role in infrastructure financing is achieving a longer term funding mix.
Fitch believes that supplementing project funding with domestic capital market issuances would be more favorable for bank credit quality.