An agreement, under which large Brazilian banks will compensate depositors who suffered losses as a result of government economic plans in the 1980s and 1990s, is credit positive for the country's largest lenders, Moody's said.
In a sector report, the rating agency said the settlement substantially reduces the liabilities of the country's five biggest banks to a manageable level. The liabilities, estimated at 10 billion Brazilian reais, will be paid to claimants over the next three years starting in 2018. In addition, the settlement clears any uncertainty around long-standing litigation.
The banks involved in the agreement include Banco do Brasil SA, Caixa Econômica Federal, Banco Bradesco SA, Itaú Unibanco Holding SA and Banco Santander (Brasil) SA. As of September, these banks account for 97% of the market's total savings deposits.
The banks have also been raising provisions against civil lawsuits and paying out claims on successful individual lawsuits, due to a pending final decision by the supreme court on the scope of compensation and eligibility. Once the supreme court approves the agreement, claimants are likely to adhere to it, instead of continuing to litigate their cases, Moody's said.
The rating agency expects the banks to have enough capital to absorb the settlement costs and the high amount of provisions to mitigate the risk.