Tag: tariffs

São Paulo city skyline with high-rise buildings and busy roads at sunset
Banking

Brazil’s credit relief for tariff-affected companies is positive for banks

AtlanticIS

Brazil, July 29, 2026 – Brazil’s (Ba1 stable) President Luiz Inácio Lula da Silva authorized the National Treasury and development bank Banco Nacional de Desenvolvimento Economico e Social (BNDES, Ba1 stable, ba11) to provide up to BRL18.5 billion ($3.6 billion) in subsidized funding for working capital and investment to support industries affected by the latest 25% US tariff increase, which took effect on 22 July. Dubbed Brazil Sovereign 3, the program will also assist companies affected by Middle East conflict-related disruptions, supporting economic activity and the labor market.

The program will help banks limit asset risks and contain loan delinquencies, which have been historically high this year amid a policy interest rate at 14.25% per year as of July. However, strong stimulus for loan origination amid still-elevated household indebtedness and asset-quality pressure would likely have negative credit implications from 2027 onward if interest rates remain significantly high. Frequent use of these support measures would also likely create incentives for borrowers to rely on additional government forbearance in the future.

Under Brazil Sovereign 3, the National Treasury will provide BRL13.5 billion, largely from funds not used in the first phase of the program, while BNDES will contribute BRL5 billion. BNDES will be responsible for disbursing the credit lines, which will carry below-market interest rates between 3% and 9.8% per year. Loan origination will begin once the detailed framework underpinning the program is published in a presidential decree in the coming weeks.

At this stage, the government has only a limited estimate of total demand for the credit lines, although subsidized rates will likely encourage companies to access the program. The program’s total volume, which will also be sufficient to provide aid to companies affected by a potential additional 12.5% tariff, accounted for just 0.25% of total system credit as of May.

Although below-market funding has an immediate positive effect on production and companies’ financial profiles, it can also distort the financial system if used indiscriminately. Such distortions were evident in the 2010s, when the government relied on sizable subsidized lending to promote economic growth, crowding out private-sector banks.

The first group of companies targeted by the measure comprises exporters directly affected by the new tariffs. A second group includes companies in strategic sectors that are relevant to Brazil’s trade balance, including critical minerals and fertilizers. The third group consists of exporters to Persian Gulf countries that are exposed to disruptions related to the Middle East conflict.

In recent weeks, the government has intensified efforts to reduce credit leverage and support economic activity ahead of the presidential elections scheduled for October. On 15 July, a provisional presidential decree authorized banks and rural producers to renegotiate up to BRL100 billion in rural debt originated exclusively by banks. To be eligible for the renegotiation program, producers must prove that they suffered losses in two harvests between 2019 and 2025 because of adverse weather or lower income caused by market conditions. The new credit lines will carry interest rates between 5% and 12% per year and tenors of eight to 10 years, depending on the size of losses, with a two-year grace period.

Although the rural debt renegotiation program will be available to all Brazilian banks, it will particularly benefit government- ownedBanco do Brasil S.A. (BB, Ba1 stable, ba1) and Caixa Economica Federal (Caixa, Ba1 stable, ba2). Their problem loan ratios in rural lending were 6.2% at BB and 18.3% at Caixa in March 2026, compared with the financial system average of 4.4%.

The measure will allow rural producers to renegotiate loans on more favorable financial terms and help prevent a further rise in delinquencies in 2026, a credit positive for banks. On 30 June, the government unveiled its BRL622 billion Crop Plan for the 2026-27 production cycle. Potential borrowers can access these funds provided they have no overdue debt obligations with banks, a condition that can also be met through these renegotiations.

Credit Outlook: 3 August 2026. Pg. 15

Moody’s Investors Service

Corporates

Impact of US Tariffs on Auto Industry: Key Insights

AtlanticIS

United States, February 10, 2025 – The recently announced US tariffs on imports from Mexico and Canada, if eventually implemented, could put pressure on the credit metrics of some global automakers. However, automakers plan to take various mitigating measures, which could offset the impact of the tariffs on their credit profiles.

On 1 February, the US announced a 25% tariff on most imports from Mexico and Canada (and a 10% tariff on China). The day before these measures were due to take effect, agreements with Mexico and Canada were reached to pause them for one month for negotiations on such subjects as migration, border security and trade. It is unclear what will emerge from the US-Mexico and US-Canada negotiations and how far the US is prepared to revise its proposals.

The potential 25% tariffs on Mexico would have the most significant implications for global automakers due to large exports of vehicles produced in the country to the US, followed by the proposed measures against Canada. The additional tariffs against China are likely to have a limited impact on the sector due to decoupling from the country’s supply chains in previous years.

Potential implications of the tariffs are likely to vary by company and will depend on the direct exposure to exports from Mexico and Canada to the US and the ability to pass tariffs on to customers, cut costs, increase prices on other vehicles to spread the costs of the tariffs, reroute shipments or implement other mitigating measures. It is not expected any material changes in the production footprints of supply chains until there is clarity about the tariff implementation.

Honda, General Motors, Nissan and Stellantis have the highest exposure to the US tariffs in a rated portfolio of original equipment manufacturers due to the high share of vehicles imported to the US from Mexico and Canada in their global sales.

Issuers with adequate or ample rating headroom will have greater flexibility to withstand the impact of the US tariffs than those with tight headroom. The Negative Outlooks on Nissan and Stellantis reflect weak performance in North America, which led to a drop in the companies’ profitability and cash flows even before the tariffs were announced.

Potential implications in this sector will be assessed based on prospects for the tariffs being implemented in full, whether they are likely to be temporary, retaliatory measures and corporates’ mitigating strategies.

Source: Fitch Ratings