Why BNDES's growing influence might hurt the Brazilian economy
Brazilian development bank BNDES is stepping up financing and supporting the government as it faces fiscal challenges, but analysts urge caution.
BNDES approved loans worth 66.5bn reais (US$12.2bn) in the first half of this year, up from 36.3bn reais in 1H23, the highest level in six years, according to the bank’s 2Q24 results presentation.
The infrastructure sector received loans worth 26.3bn reais, up from 10.7bn reais, while industry got 14.5bn reais, agriculture 14.2bn reais, and retail and services 11.4bn reais.
Net profit was 7.2bn reais compared with 3.7bn reais in 1H23.
“The results for the first half of 2024 prove that, under President [Luiz Inácio Lula da Silva’s] administration, BNDES resumed its role as the main instrument for promoting Brazil's development. In January 2023, we found the bank to have a lack of funding and liquidity. Now, we have achieved the largest credit portfolio in the last six years,” BNDES president Aloizio Mercadante told an online press conference.
However, "one of the main risks for the national financial system would be a continued and very aggressive expansion of BNDES to the point of causing market dysfunction," Carlos Daltozo, head of equity analysis at Eleven Financial Research, told BNamericas.
“BNDES, as a bank that has sovereign guarantees from the government, has lower funding costs than other banks, which in practice is a kind of subsidized interest rate. If BNDES starts passing this low cost to companies, projects and sectors of the economy that are'nt efficient, this will cause serious disruptions that we've already seen in the past,” he added.
Daltozo also said that “BNDES has an essential role in promoting sectors that don't have access to credit and have great potential for development. On the other hand, it can't reward sectors that are known to be inefficient with lower interest rates.”
Mercadante said the bank will pay 15bn reais in dividends to the government, based on last year's results. Representing the largest amount in the bank’s history, the dividends come as the government is facing major fiscal challenges amid higher public spending.
The Workers’ Party administrations between 2003 and 2016 used the bank to inject resources into the economy, which caused negative effects due to its subsidized credit model.
When Lula returned to office in January 2023, analysts warned that these mistakes could be repeated. BNDES officials, however, maintain that such a scenario is unlikely because the bank’s funding is no longer based on subsidized interest rates.
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