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Moody's: Brazil cooperatives can issue banknotes, a credit positive measure

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Moody's: Brazil cooperatives can issue banknotes, a credit positive measure

A measure by Brazil's central bank to allow credit cooperatives to issue local currency banknotes known as letras financeiras, approved Sept. 5, is credit positive for the country's cooperatives as they will be able to diversify and expand their funding sources, Moody's said.

According to the rating agency, "from 2015 to 2018, credit offered by the Brazilian cooperative system grew by a compound annual growth rate of 14.6%, versus just 0.4% for banks, and in 2018 alone, growth was 23% versus 5.4% for banks."

Moody's said that 75% of the funding at cooperatives is deposit-based compared to an average of about 50% for traditional banks.

As cooperatives can now begin issuing local currency banknotes, the rating agency believes the new initiative by Banco Central do Brasil will enable them to broaden funding sources and promote credit growth and profitability.

"The new measure will also help cooperatives lengthen the tenor of their funding books, enabling them to offer longer-term credit to their members and to compete with banks across a greater range of products," Moody's added.