Transcript Provincial banks

STATE OWNED FINANCIAL
INSTITUTIONS
Brazilian Provincial Banks
Brasília, December 2005
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 Provincial banks
 Commercial banks and development banks.
 Open access to public savings.
 All market sources of funding.
 Long story of problems.
 In the eighties
 Restructuring exercises: unsuccessfully.
 Real Plan and monetary stability.
 Open difficulties in the banking system.
 PROER: Government Program to deal with the crisis of private banks.
 PROES: Government Program for provincial banks.
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PROER (November 1995)
 Institutional framework to provide conditions for the purchase
and sell of failing banks.
 Objective: to rescue depositors, investors and savings, in order
to keep confidence in domestic financial system and to avoid a
chain of bankruptcies.
 Tax payer money to close the gaps of ailing banks in order to
make viable their acquisition by sound banks, domestic or
foreign.
 There was no rescue or help to broken bankers.
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PROES (August 1996)
 Objective: to support privatization or closing of provincial banks.
 Instrument: Central Government long term loans to States.
 Capitalization of provincial banks to prepare them for privatization.
 Orderly liquidation of provincial banks.
 Additional Incentive: in exchange for giving up their commercial or
development banks State Governments were entitled to receive
another long term loan to create Development Agencies.
 Development Agencies (Agências de Fomento) were a new kind of
financial institution designed to support local or regional economic
development.
 In the beginning there was also the possibility of restructuring instead
of privatization or closing.
 If this were the case, Central Government would provide finance for
50% of the restructuring costs.
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DEVELOPMENT AGENCIES (Agências de Fomento)
 Minimum capital requirement: R$ 4.000.000,00 (≈ US$ 1,800,000.00).
 Leverage ratio: 2,59 (maximum rate between liabilities and capital).
 Should keep, at least, an amount of capital equal to 30% of risk
weighted assets.
 Liquidity fund equal to 10% of liabilities.
 Funding confined to Development Financial Institutions (domestic or
international) and Official Resources (Fiscal Funds).
 In December 2002 there were 10 Agências de Fomento (one else have
been authorized in 2003).
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PROES RESULTS
 21 Provincial banks disappeared
 12 “Agências de Fomento” have been created and two more are to be
open.
 PROES Costs: R$ 94 billion (as of Dec/2003) ≈ US$ 33 billion
(exchange rate of R$ 2 ,845 per US$ as of Jan/2004) ≈ 6,2% of 2003
GDP.
 PROES Privatization Revenues: R$ 15,4 billion (as of Dec/2003) ≈ 1%
of GDP or 16,4% of costs.
 “Agências de Fomento” respond by less than 1% of total credits of
Official Financial Institutions.
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