SAO PAULO--(BUSINESS WIRE)--A shift in Brazilian bank funding sources over the last 5 years has primarily benefited the country's small and medium-sized banks, according to a new report by Fitch Ratings.
The introduction of three new securities - Letras Financeiras, Letras de Credito Imobiliarias and Letras de Credito Agronegocio - has contributed to improved funding profiles at Brazil's smaller banks in the wake of the Banco Panamericano fraud five years ago, although larger institutions have also benefited.
'Brazilian banks have exploited new instruments made available by regulators to attract funds and reduce overall funding costs' said Eduardo Ribas, Director in Fitch's Latin America Financial Institutions group.
'As a result, banks continue to seek diversified sources of funding, and have incorporated more of these new deposit-like securities improving their overall funding profile and favoring better asset and liabilities management.'
These new securities have minimized the common but significant limitations faced by Brazil's small and mid-sized banks in markets where deposits are concentrated along large and nationwide banks. In addition, their longer tenor increases the stability of their financial profiles and enhances the maturity asset and liability management of their balance sheets.
While these new securities are increasingly large components of small and mid-size banks' funding base, larger financial institutions still own the majority share of outstanding securities.
Despite the advantages, lack of stress testing poses a potential risk as the new securities may behave differently under a serious system wide liquidity crunch.
Because new sources of funding can distort loan to deposits ratios, Fitch has recalculated the loan to deposits ratio for Brazilian banks to include the liabilities related to the new securities and provide a more fair comparison with banks in other markets.
The full report 'Demystifying the Loan to Deposits Ratio in Brazil' is available at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: Demystifying the Loan to Deposits Ratio in Brazil