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Country Commercial Guides for FY 2000:
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SECTION VIII. TRADE AND PROJECT FINANCING
Description of Banking System
The largest in South America, Brazil's banking system is highly developed, efficient, and offers a wide range of financial services. Brazil's Central Bank regulates banking and financial services, and maintains strict accounting and operational supervision. Private sector banks are often organized as financial conglomerates offering a full range of financial services through subsidiaries and associated companies. Many of Brazil's states have state-owned or controlled banks offering public and private banking services. However, the number of such state-level banking institutions has been fallen in recent years due to the central government's financial and banking reform efforts.
The following are key governmental financial institutions:
National Monetary Council -- Sets monetary policy;
Central Bank -- Executes monetary policy, manages exchange transactions, regulates banking and financial institutions, registers foreign investment;
Bank of Brazil -- Finances both public and private sector projects, primary lender to the agricultural sector;
National Economic and Social Development Bank (BNDES) -- Provides long-term financing and administers the privatization program.
For more information on Brazil's banking system, see Trade and Project Financing, and the Investment Climate Statement, Chapter VII.
Foreign Exchange Controls Affecting Trade (As Opposed to Investment)
Obtaining an import license gives importers access to foreign exchange to pay for imports at the commercial rate through commercial banks. Individuals may import items via catalogs or phone/mail order, paying with an international credit card. In May 1997, the government instituted new rules that forbade normal financing of outstanding balances arising from international credit card purchases. Ended in March 1998 for most practical purposes, were import financing restrictions imposed in April 1997 that had required importers to purchase foreign exchange for financing purposes at least 180 days in advance of the due date for short-term supplier credit, i.e., of less than 360 days in duration. Brazil had granted a series of "temporary" exceptions for Mercosul member states for individual shipments less than US$ 40,000 in value (raised to US$ 80,000 following the recent devaluation).
The current rules require that importers purchase foreign exchange contracts from commercial banks for any payments due up to the last day of the second month following entry of the goods in question, i.e., from 60 to 89 days following entry. Payment must be made at the time the import declaration is filed as part of customs clearance procedures. Transit time to brazil is not provided for and finance for this period must be negotiated by buyer and seller. Beyond this variable period of time, normal import finance arrangements are permitted.
General Availability of Financing
Interest rates prevailing in Brazil for short term loans (60 to 90 days) range currently from 1.7 to 4.5% per month (with inflation of -0.29% in May 1999). The National Bank for Economic and Social Development (BNDES) is one of the few sources of long term financing in the market. The BNDES budget for 1998 was about US$ 16.3 billion for financing to small, medium or large Brazilian companies investing in capital goods, raw materials, infra-structure, energy or technology.
Loan terms for FINAME (Special Agency for Industrial Financing) are:
- Maximum coverage is 70 to 90 percent of transaction; for exports coverage is 100 percent.
- Maximum of US$ 7,000,000 is automatic, per company, disbursed in one year. Disbursal above that limit depends on the company in question.
- Cost: currently 16.32 to 19.15 percent per annum (Long Term Interest Rate of 13.48 percent plus spread of 2.5 to five percent representing BNDES spread and commercial bank fee.
- Amortization period: normally monthly.
- Maximum grace period: up to six months.
FINEP - The Study and Projects Financing Agency of the Ministry of Science and Technology made available US$ 1 billion in 1995 for long term financing at 31.59% per annum (grace period 2 years and repayment period of 5 years) to Brazilian companies for developing new products, research centers, total quality systems, partnership and joint ventures. FINEP'S funds are made available to the public through some development banks.
Leasing, lease-back and leasing-import are widely used in Brazil. Leasing is available for both new and used, locally produced and imported equipment. The leasing operation includes financing of installation, transportation, freight, import taxes and all other taxes and fees involved in the importation.
How to Finance Exports/Methods of Payment
All the standard methods of export financing are available and used in Brazil. Brazilian commercial banks, and subsidiaries of international banks are active in trade finance. However, letters of credit and other trade finance can be expensive to open in Brazil. As a result, many suppliers extend open account privileges to established reliable clients in Brazil to avoid high financing costs.
Types of Available Export Financing and Insurance
Export-Import Bank of the United States
The Export-Import Bank of the United States (Eximbank) offers a range of loan, insurance and loan guarantee programs to facilitate exports of U.S. goods and services. The Bank's short-term, medium-term and long-term programs are available to support U.S. exports to Brazil when the obligor is a highly creditworthy private sector entity. Following a relaxation of policy in late 1998 reflecting Brazil's progress in making up arrears payments to U.S. Government lenders, a Brazilian public sector entity may be the end-user, obligor, or guarantor of financing provided with Export-Import Bank assistance.
The Bank does not require that a private sector commercial bank be the obligor or guarantor on all transactions. If the risk is with a non-bank company, its audited balance sheet and income statements must be very strong, and the company must have a good commercial track record.
The Ex-Im Bank requires information on proposed obligors and guarantors. Such information includes financial statements and credit references. Engineering data is required for long-term transactions.
Most of the Bank's recent medium-term Brazilian business has been done under the Credit Guarantee Program. Eximbank acts mainly as a guarantor of U.S. bank loans to private Brazilian banks, assuming the commercial and political risks of the loans. The Brazilian bank becomes the obligor and assumes the commercial risk of the transaction. The resources guaranteed by the Bank are made available to privately-owned Brazilian companies importing U.S. goods and services.
Ex-Im Bank works with the Foreign Credit Insurance Association (FICA) to offer various export insurance programs, including short-term and medium-term export insurance, multi-buyer insurance, letter of credit insurance, and lease insurance policies. Other Eximbank guaranteed export credits are available from the Private Export Funding Corporation (PEFCO), which borrows in the commercial market and re-lends for exports.
Additional information on Ex-Im Bank, FICA and PEFCO programs can be obtained from:
Export-Import Bank of the United States 811 Vermont Avenue, NW Washington, DC 20571 (202) 566-8990 Eximbank Regional Offices: Northeast 6 World Trade Center Suite 238 New York, NY 10048 Phone: (212) 466-2950 Fax: (212) 466-2959 Southeast P.O. Box 590570 Miami, FL 33159-0570 Phone: (305) 526-7425 Fax: (305) 526-7435 Southwest Ashford Crossing II 1880 South Dairy Ashford Suite 585 Houston, TX 77077 Phone: (713) 589-8182 Fax: (713) 589-8184 Midwest 55 W. Monroe Street Suite 2440 Chicago, IL 60603 Phone: (312) 535-8081 Fax: (312) 353-8098 West 222 North Sepulveda Boulevard Suite 1515 El Segundo, CA 90245 Phone: (310) 322-1152 Fax: (310) 322-2041Availability of Project Financing, Including OPIC and Eximbank Project Finance, Lending from Multilateral Institutions.
There is a huge potential for project finance operations in Brazil because of the lack of public funds for investing in infrastructure. Market estimates are that US$ 26 billion need to be invested in the Brazilian State-owned companies in the next four years of which US$ 9 billion will be in electric power, US$ 7 billion in telecommunications; US$ 5 billion in transportation; and US$ 5 billion in the petroleum sector.
Due to high domestic interest rates, almost all project finance is raised in the international market. Exporting companies typically securitize future export earnings not only for implementing restructuring projects but also for working capital.
Since February 1995, the Brazilian Government has granted concessions to private companies to explore commercially some of the activities formerly reserved to state-owned companies (electricity generation, road repair). The concessions opened new business opportunities for banks operating in Brazil. Several banks are engaged in project finance for private investors, by providing financial advisory services, raising funds from the investors themselves and often from international sources (Eurobond market and securitized papers). The preliminary studies involved in project finance can take as long as four years. Investors typically seek guarantees from international institutions because the long-term nature of the operations presents high political risk.
Some of the projects that could be undertaken through project finance include the construction of 19 hydroelectric plants which were halted in the past due to the lack of investment funds; the Brazil-Bolivia gas pipeline; and repair of several highways. Banco Pactual, Banco Chase Manhattan S.A. and Banco Itamarati are some of the banks in Brazil involved in project finance.
Multilateral Development Agencies
The World Bank and the Inter-American Development Bank (IDB) are also involved in supporting infrastructure projects in Latin American countries. The IDB is planning to lend some US$ six billion during the period 1997-2000 in the region with 40 percent of this in the social sector. In Brazil, the World Bank had US$ 4.5 billion in undisbursed loan commitments at the beginning of 1996 and approved projects totaling US$ 875 million during the year. The Bank's activities include traditional cofinancing, World Bank guarantees, creating infrastructure funds to finance private project companies, and designing projects for future private sector participation.
In June 1994, the Ex-Im bank established a Project Finance Division. The bank is capable of financing all creditworthy projects that request its support. Ex-Im has no minimum or maximum project size limitations and no specific country lending caps. The cost of using Ex-Im Bank financing will be directly based on the risks associated with each project and will be designed so that the bank neither makes nor loses money.
Types of Projects Receiving Financing Support
The proposed 480 megawatt gas-fired Cuiaba integrated pipeline and power pland project in the state of Mato Grosso, at a projected cost of US$560 million, would be the first internationally financed independent power project in Brazil. If successfully implemented, the project could open the door to other such investments in Brazil that will a boost to economic growth and development and a source f long-term capital. Although some technical problems with Brazil's central bank has caused some delay in finalizing the accord, it is hoped that these technical impediments will be resolved quickly.
List of Banks with Correspondent U.S. Banking Arrangement
Brazil has one of the most sophisticated financial systems in Latin America. U.S. commercial banks have been in Brazil since 1915, and numerous American banks have a presence in Brazil today. In terms of asset size, Banco de Boston, Citibank, JP Morgan, Chase, and Bank GM were among the top 50 institutions in the country as of December 1997. However, no U.S. banks placed among the country's top 20 institutions by December 1998 on this basis.
American Express Bank Ltd. (São Paulo) Banco de Boston (Sao Paulo) Bank Audi (Sao Paulo) Bank of America - Illinois (Sao Paulo) Bank of America International of Florida (São Paulo) Bank of America International of Texas (São Paulo) Bank of America National Trust and Savings Association (Rio de Janeiro
and Sao Paulo) Bankers Trust Company (Sao Paulo) Bear Stearns & Co. Inc. (São Paulo) Capital Bank (Rio de Janeiro) Chemical Bank (Sao Paulo) Corestates Bank N.A. (Sao Paulo) Delta National Bank and Trust Company of New York (São Paulo) First Interstate Bank of California (Rio de Janeiro) First Republicbank Dallas, N.A. (Sao Paulo) Harris Trust and Savings Bank (Sao Paulo) Manufacturers Hanover Trust Company (Sao Paulo) Mellon Bank (Sao Paulo) Morgan Guarantee Trust Company of New York (Rio de Janeiro) Nations Bank (Sao Paulo) NCNB National Bank of North Carolina (São Paulo) Pinebank (Sao Paulo) Pittsburgh National Bank (São Paulo) Republic National Bank of New York (Rio de Janeiro) Security Pacific National Bank (São Paulo) Skandinaviska Enskilda Banken Corporation (São Paulo) Texas Commerce Bank N.A. (Sao Paulo) The Chase Manhattan Bank N.A. (Sao Paulo) UBS Securities Inc. (Sao Paulo) Union Bank of California N.A. (Sao Paulo) The Bank of New York (Sao Paulo)
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[end of document] Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title17, United States Code.
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