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Report: Caixa could shift assets to BNDES to meet Basel III capital requirements

Banco Central do Brasil has asked the government to find ways to strengthen the capital base of the state-run bank Caixa Econômica Federal, amid fears that the institution might not meet Basel III capital requirements by January 2019, Valor Econômico reported.

The move comes as Caixa ended the second half of 2017 with a common equity Tier 1 capital ratio of 8.97%, one of the lowest among major banks in Latin America though still above the 7% threshold required by 2019 under Basel III rules.

In an effort to help bolster the ratio, the government reportedly is evaluating a possible transfer of some 10.00 billion Brazilian reais worth of Caixa's assets to the country's development bank, Banco Nacional de Desenvolvimento Econômico e Social, which had a far stronger CET1 ratio of 15.17% as of June 30. A transfer of good-quality assets would not impact BNDES' ability to meet its own lending demands, though the publication noted that the specific assets that could be included in any such move have yet to be determined, and Caixa and BNDES have not yet started discussions.

Still, in an interview following the report's release, Planning Minister Dyogo Oliveira insisted that no bad assets would be part of any potential transfer. "I do not know if they are discussing this type of operation, but I can assure you that this will be done with good assets if that is the case," he reportedly said.

Caixa is also working on several other measures that would result in a higher CET1 ratio, including a request that state workers' fund FGTS start negotiations to provide the lender with a subordinated debt instrument. The state-run bank reportedly has also assembled a portfolio of nonperforming real estate assets worth 1.00 billion reais that it plans to sell off to a private fund.

The reported moves come as Caixa is facing criticism for holding back pre-approved mortgage credit from borrowers, according to a separate report from Folha de S. Paulo. Customer complaints reportedly have increased 9% in the first half of 2017 in part due to extended delays and growing red tape in garnering credit from the bank.

As of Oct. 17, US$1 was equivalent to 3.18 Brazilian reais.