Brazil, Mar 27, 2020 – President Jair Bolsonaro announced that the Tesouro Nacional, the national treasury, will transfer BRL40 billion ($7.8 billion) to development bank Banco Nac. Desenv. Economico e Social – BNDES (Ba2/(P)Ba2 stable, ba21) for a new credit line that will finance payroll expenses of small and midsize companies (SMEs) during the next two months. The measure will alleviate cash flow pressure in companies affected by the partial shutdown of economic activity related to the coronavirus emergency.
BNDES will manage the credit line and lend the resources to financial institutions, which, in turn, will finance wages paid by companies eligible for the funding. The companies eligible for the credit line have annual sales of BRL360,000-BRL10 million. BNDES, on behalf of the treasury, will contribute 85% of the loans, while banks will bear the risk of the remaining 15%. BNDES will act as a mere conduit for the Tesouro Nacional, transferring funds to financial institutions at an interest rate of 3.75% per year, the same as the benchmark policy rate (SELIC). Banks, in turn, will finance companies’ payroll. As a result, BNDES will not incur in credit risk.
Even if available for two months only, the payroll relief will help companies navigate this economically stressed period, which will alleviate the growing credit risk in banks’ loan portfolios, particularly for specialized SME lenders such as Banco Fibra S.A. (B3/(P)B3 stable, b3) and Banco Sofisa S.A. (Ba2 stable, ba2). Payrolls account for up to 40% of companies’ operating expenses in Brazil. In the absence of normal revenue inflow, companies will likely have limited cash to honor outstanding loans, which are usually short-term working capital finance operations with their banks.
The credit line conditions include a grace period of six months and a total maturity of 36 months. It is mandatory that banks lend the resources at a rate of 3.75% per year. The credit line will be available only for companies that commit to keeping their staff employed for the next two months and will be available only for salary payments. The government, acting through the financial system, will cap the financing at twice the minimum wage per employee; while companies will cover any additional costs, if needed.
The government aid to payroll expenses responds to companies’ complaints that banks cut credit lines and raised interest charged in loan renegotiations over the past two weeks, despite BRL1.2 trillion of additional liquidity that earlier central bank measures provided.
Credit Outlook: 2 April 2020. Pg. 7
Moodys
Atlantic Investors Service 