Latin America: Lenders warming up to Brazilian banks

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By:
Rob Dwyer
Published on:

Recent IFC deal for Banco Daycoval outperformed initial expectations; IFC sees changing role in Brazil as interest rates fall.

The sentiment of lenders regarding Brazilian financial institutions is improving, according to Marcelo Castellanos, International Finance Corporation (IFC) manager for the financial institutions (FI) group, Latin America and the Caribbean.

The IFC recently closed a $275 million financing package for Banco Daycoval, a Brazilian bank that specializes in corporate credit, payroll loans, and small and medium-sized enterprise (SME) loans.

Marcelo Castellanos-160x186

Marcelo Castellanos,
IFC 

Castellanos says it is the seventh such deal for the bank in the past 11 years and he believes the recent deal – which was upsized from $250 million to satisfy strong interest from participants in the syndicated loan tranche – is evidence that international investors’ appetite for extending credit to Brazilian banks is recovering.

“It’s important that all the banks were international except for Itaú and one of those was a first-time investor in Brazil [Switzerland’s responsAbility Social Investments AG] and five were first-time investors in Daycoval,” says Castellanos.

The financing terms are not being disclosed, but Castellanos says: “The syndication provided better conditions than we imagined at the beginning – the price was better than was expected.”

He says the deal points to “a good trend for Brazil – there are already very good signs that the light is at the end of the tunnel in the economic recovery. Maybe it’s a long tunnel, but there is a light there.”

As well as the two-year syndicated loan – which attracted 11 participating banks and was split into two tranches, one of $105 million and another of €55 million – the rest of the financing package consisted of a $63.6 million, five-year loan from the IFC and a $47.7 million loan through the IFC’s managed co-lending portfolio programme, which matches the IFC’s loan terms for passive investment from institutional investors.

The financing was provided on a variable rate over Libor. Banco Daycoval hedged the dollar financing in the local options market and lends in local currency to avoid currency mismatch.


Women tend to be less aggressive [in seeking financing terms] and more responsible – the sustainability of woman-owned enterprises is better 
 - 

Marcelo Castellanos, 

IFC


The terms of the financing mandate that 25% of the loan should be used by Daycoval to finance woman-owned or managed businesses in Brazil’s SME segment – defined at loans of between $10,000 and $2 million at origination.

While this is the first loan to Daycoval that directs funding to this specific segment, Castellanos says the IFC has now allocated around $650 million to the female SME segment in Brazil. He says that he doesn’t have specific credit metrics about how the non-performing loans compare in the woman-owned SME segment to plain vanilla SMEs, but he does say it performs favourably.

“We have discovered over time that this is a less-risky segment than overall SMEs,” says Castellanos. “In general, women tend to be less aggressive [in seeking financing terms] and more responsible – the sustainability of woman-owned enterprises is better.”

Castellanos says the IFC’s experience is also that women interact with banks differently. The IFC advises its client banks about how to service the sector, stating: “Women engage with banks in a different way – they appreciate the advisory services more [than men] and all the additional services that the bank can offer besides just the money itself.

“And women tend to have less time to visit branches than men, so we have found they prefer digital channels.”

Rainy days

Castellanos says the IFC’s role in Brazil has been increasingly sought-after in recent years, adding: “As a multilateral institution, our role increases in difficult times. We are like the umbrella for the rainy and stormy days.”

However, Castellanos says the IFC expects to continue to maintain its financial commitment to Brazilian financial institutions – which in recent years has been stable at around $1 billion – even if demand for IFC loans falls as the bank financing market normalizes with falling interest rates.

“When interest rates go up, we are able to work with a large group of financial institutions [to provide straight-forward loan financing],” says Castellanos. “When interest rates go down, then the target of the FI group may drift to another sub-segment of the market. Perhaps then it will be time to start working in developing the capital markets.

“So we are very dynamic and, depending on the context of the market, we put our emphasis on different targets. For example, in the past we have been very active in the equity business.”

Castellanos says the social investment on the investment aims of IFC will continue to see woman-owned SME loans being originated, as well as other key sectors such as green infrastructure and financial inclusion projects, and agribusiness investments.

However, while Castellanos envisages a changing role in Brazil, for now the IFC remains focused on supporting international investment into Brazilian institutions.

“We are providing support to Brazil in a very difficult economic moment,” he says. “International investors are obviously looking very carefully at the market. We continue to play the mobilization role by providing a stamp of approval to the country and the specific bank.”