Reuters: Regulatory News: Brazil's BVA to ramp up capital after first-half loss -source

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Brazil's BVA to ramp up capital after first-half loss -source Aug 28th 2012, 18:03 Tue Aug 28, 2012 2:03pm EDT * Partners to pump in 300 mln reais to boost capital * Loss follows heavy provisions, source says * Comes amid tough outlook for mid-sized lenders By Guillermo Parra-Bernal SAO PAULO, Aug 28 (Reuters) - Banco BVA, a Brazilian bank specializing in credit for mid-sized companies, will replenish its capital base in coming weeks after incurring a net loss in the first half, a source with direct knowledge of the situation told Reuters on Tuesday. The bank, which is controlled by founder José Augusto Ferraz Santos and financier Ivo Lodo, will soon receive over 300 million reais ($146 million) in fresh money, said the source, who declined to be quoted since the plans remain private. The move should increase the bank's capital base to about 1 billion reais, the source added. A local media report earlier in the day suggested that BVA could be under strain in the wake of central bank regulations that imposed stricter bad loan provision practices earlier this year. Banco BVA booked an unspecified first-half net loss after setting aside about 150 million reais to cover potential losses in the value of its loan book. "Exclude the impact of those provisions and the bank would have booked a profit," said the source. "The bank brought forward the burden of the provisioning, in order to open room for a cleaner balance sheet in the coming months." Years of rapid credit expansion in Brazil have resulted in tougher funding and liquidity conditions as well as a relaxation of risk assessment and auditing controls among smaller lenders. Problems have been more evident at so-called mid-cap banks specializing in consumer credit such as payroll-deductible and auto loans -- markets in which BVA does not operate. Concerns over the fate of smaller lenders in Brazil mounted after the central bank seized consumer lender Banco Cruzeiro do Sul in June and placed it immediately under the administration of privately held deposit guarantee fund FGC. It was the third time since late 2010 that regulators seized a mid-cap bank after detecting accounting irregularities. The bank's investor relations unit declined to comment. The yield on Banco BVA's 9.125 percent bond due in Feb. 2014 was unchanged at 6.52 percent on Tuesday. The firm sold $45 million of that bond in September last year. Assets at mid-cap banks tripled since 2006 at the expense of eroding solvency, analysts said. As demand for lending remained firm, mid-cap banks embarked on ambitious growth plans that are to blame for their current capital shortfalls. A flurry of central bank controls aimed at enhancing oversight of the segment in the past year have made it harder for mid-cap lenders to comply with regulations, FGC Chairman Antonio Carlos Bueno said at the time of the Cruzeiro do Sul seizure. More problems may surface for smaller consumer lenders if authorities make no moves to fix the segment's inefficient funding structure, in which cash flow mismatches are frequent. The source told Reuters that Banco BVA faces no cash flow problems currently and that its funding structure remains "robust." In recent days, Ferraz and Lodo met with employees to communicate the first-half loss at BVA. According to a report by newswire iG earlier in the day, management told as many as 400 employees present at the meeting that BVA would keep tightening disbursements to stave off potential credit-related losses. The source with knowledge of the situation told Reuters that the strategy mimics that taken at the height of the global financial crisis of 2008, when credit markets seized up and lenders such as BVA ran short of funding. Disbursements should increase as the Brazilian economy emerges from a 1 1/2 yearlong slowdown, the source added. Link this Share this Digg this Email Reprints

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