Moody’s positively assesses cuts in reserve requirements for Brazil banks

Credit rating agency Moody’s regarded the reduction in reserve requirements for Brazilian banks—approved a week ago by the Central Bank—as positive to the country’s economy. A report was published Thursday (Apr. 5).

“The reduction in reserve requirements is credit positive for Brazil’s biggest banks because it will lower funding costs by releasing into the financial system BRL25.7 billion ($7.8 billion) of funds deposited at the [Central Bank of Brazil],” the report reads.

The proportion of demand deposits financial institutions are to pay the monetary authority was reduced from 40% to 25%. As for rural savings, the ratio slipped from 21% to 20%.

For savings common to other deposit modes, the ratio fell from 24.5% to 20%.

The Central Bank also raised to $60.7 million the amount each bank is allowed to deduct from the demand deposit base for the calculation of mandatory reserves. This value had previously stood at $21.2 million.

Moody’s believes that the action taken by the Central Bank aims to stimulate loan growth at a moment when consumers and businesses are starting to show a greater appetite for credit. “However, an increase in lending will depend on banks’ credit risk strategies, which have focused on secured consumer lending such as payroll loans, mortgages, vehicle financing and short-term and collateralized loans to small and midsize companies,” Moody’s said.

Translated by Fabrício Ferreira