Bankers see more expensive credit and change in Petrobras readjustments

Although they emerged virtually unscathed from the direct impacts of Russia, large Brazilian banks are already predicting a contraction in credit due to rising inflation and interest rates, a scenario resulting from the war in Ukraine that will further slow down the growth of the economy.

THE sheet heard three bankers on condition of anonymity and they were unanimous in removing any type of contamination from the national financial system. However, they stated that there will be indirect damages from the erosion of parameters of the economy.

At Febraban, an association that brings together the main institutions, and at ABBC (Brazilian Association of Commercial Banks), the exposure of national banks operating in Russia became the subject of meetings, but given the figures presented, it was considered negligible.

Febraban said its associates did not report a “situation that indicates concern”.

Data from the BIS, the central bank of central banks, indicates that Brazilian institutions have less than US$5 million in exposure in Russia.

The biggest weight is in the European institutions, with whom Russia maintains more financial relations.

Also according to the executives of the consulted banks, the national financial system will feel the indirect impacts of the war, through the depreciation of the economic scenario.

They say sanctions imposed on Russia will raise food and fuel prices by up to 15% — Russia and Ukraine account for about 30% of fertilizer imports.

Food and fuel are relevant components in the basket used to calculate inflation, which should extrapolate the center of the target, which is 3.5% in 2022.

Recently, the Minister of Agriculture, Tereza Cristina, said that she is trying to look for new fertilizer suppliers, such as Iran (for urea-based inputs) and Canada (phosphate) to reduce the damage.

Anyway, according to the minister, the rise in the price of food for the consumer is already taken for granted.

For the banks heard by the report, the biggest problem will come from fuel. They consider that Petrobras’ price adjustment policy will have to be reviewed.

Today they realize that the company insures at least 10% of the readjustments for each rise in oil prices. The lag, according to them, would be around 30%.

With the sharp rise in the barrel of oil, the expectation is that the oil company will pass on the price increases more quickly, something that will have a direct impact on industry and fuels.

In other words, for them, the result will be an increase in inflation, a drop in income, less consumption, and low growth.

The government is considering holding Petrobras’ adjustments to contain this impact. This Monday, President Jair Bolsonaro (PL) even criticized the state-owned company’s current pricing policy, which led the company’s shares to collapse on the stock exchange.

In an election year, bankers also estimate that Bolsonaro will run for reelection with a fiscal framework that, corrected for high inflation, could end 2022 with a primary surplus — instead of a projected deficit of 0.7% of GDP.

One of the bankers called this situation a “monetary illusion”, a makeup of public accounts due to the combination of high inflation and depreciation of the real. This will occur, according to the bankers, at the expense of a drop in the population’s income.

For them, this scenario will be favorable to agribusiness exports, but this will not be enough to promote GDP growth.

There is also an expectation of an increase in future interest rates, which should reach 14%. Today, they are at 12.5%, already considering the political risk arising from the presidential elections.

Future interest rates reflect the country’s insecurity in the face of concrete risks that, the higher, the more upward pressure on the premiums demanded by investors.

Bankers, however, perceive a negative wave coming from the US, where the market expectation is for a need to cut basic interest rates to around 1.6% per year – today they are at 2.5%. The Fed, the US central bank, has been signaling highs.

This possible movement of falling interest in the US, according to the executives, will lead to the depreciation of the real against the dollar, requiring a dampening effort by the Central Bank.

Another source of concern arising from the war will be the loss of liquidity of the entire global financial system, which will be used to cover public spending through borrowing.

Although Russia has shown signs that it has been preparing for the invasion for years, strengthening its cash position and reducing exposure to foreign currencies, the reaction of Russian companies and banks surprised.

The financial asphyxia imposed by the sanctions of the international community left Russian airlines and banks with the breath to survive only a month with their own cash, according to market projections. After this period, they will begin to operate under the risk of bankruptcy without access to the capital market of the West, their biggest financier so far.