Opinion – Marcia Dessen: Who gains from the IR exemption on fixed income securities?

The quotation of floating rate applications, linked to the Selic or CDI, is given as a percentage of the reference interest. Savings, for example, pays 70% of the Selic, and the Letra Financeira do Tesouro (or Selic Treasury), 100% of the Selic. In both cases, profitability is valid for all investors, there is no room for negotiation.

The CDB (Certificado de Depósito Bancário) is also a floating rate application, adjusted by the CDI rate. However, the percentage of the fee assigned to each deposit is not standard, each bank defines how much it is willing to pay.

So far we are talking about gross rates, subject to the incidence of Income Tax (except savings), which brings me to the topic of today’s column, IR-exempt applications, such as LCI (Letter of Real Estate Credit), LCA (Agribusiness Letter of Credit), LIG ​​(Guaranteed Real Estate Letter), CRI (Real Estate Receivables Certificate), CRA (Agribusiness Receivables Certificate) and incentivized infrastructure debentures.

Securities are issued by financial and non-financial institutions to raise funds to finance projects related to their respective segments of the economy. To attract investment, the government opted for tax exemption on income paid to investors willing to finance these projects. However, what is observed is that part of the benefit remains with the issuer of the bond, which, in this way, reduces its cost of funding.

I explain better with an example. A bank pays 100% of the CDI in a fundraising via CDB. Assuming the current rate is stable, the investor will receive a gross yield of 12.75% in one year and this will also be the bank’s funding cost.

The same bank offers LCI at a net rate of 90% of the CDI, equivalent to a gross rate of 112.5% ​​of the CDI in applications between 6 and 12 months subject to IR of 20%.

Although the CDI percentage is lower, the net return on LCI will be higher than the net return on CDB after IR; in one year, the investor would gain 11.475% in LCI, against 10.20% in a CDB, an extra gain of 1.275 percentage points.

While it’s a good offer, it could be better. In the example, the bank receives half of the benefit, reducing its funding cost by 1.275 percentage points per year (10% of the CDI rate).

A transaction exempt from income tax quoted at 100% of the CDI, equivalent to 125% of the gross CDI considering income tax of 20%, would give the investor the full benefit of the tax exemption, of 2.55 percentage points per year. For the bank, the cost of funding does not change, it would be the same for deposits with or without incentive.

The quotation of these investments differs among the different financial institutions in the market due to the greater or lesser need for resources, the law of supply and demand prevails.

Thus, banks tend to pay more when demand for loans is high, and pay less or simply stop quoting incentivized applications when demand is low or non-existent. Another factor that explains different quotes, with a higher or lower CDI percentage, refers to the issuer’s credit risk level. A large bank tends to pay, at the limit, 100% of the CDI, while a smaller bank tends to pay more to be competitive.

Liquidity also matters and justifies different quotes. A longer bond, with no pre-maturity liquidity, is likely to pay a higher percentage to offset the investor’s credit and liquidity risks. A security with daily liquidity after a 90-day grace period, for example, tends to offer a lower percentage of the CDI.

The market will be fairer when all the money that was not collected by the Federal Revenue Service is destined to the investor, who took credit and liquidity risks to finance the incentivized projects. The bank’s profit will come from the loan operation made to the borrower, who bears the costs of this financial intermediation.