Market expects adjustment in liquidity measure for corporate bonds
The Central Bank regulated on Tuesday the R$91 billion line that the National Monetary Council created for the provision of loans to banks backed by corporate bonds. Asset managers considered the measure "in the right direction," but "inefficient" to solve the current problems of liquidity shortage on the secondary market of these debt securities. Uncertainties caused by the coronavirus pandemic are increasing fund redemptions and locking trading.
The problem that asset managers pointed out is in the collaterals that the Central Bank (BC) demands to extend the credit. One asset manager says that in practice, to access the line, banks will have to give three guarantees to the BC. The first is the bank's credit guarantee, which is considered natural since a credit transaction is being signed between the bank and the BC. The second will be the corporate bonds, which will remain as a kind of extra collateral for the loan. Moreover, the transactions also must be backed by reserve requirements kept in bank reserve accounts, in an amount equivalent, at least, to the total of the credit facility.
This immediately excludes small and medium-sized banks from the program. But it will also end up excluding the big banks, asset managers say. They add that banks fear that the Central Bank will release the reserve requirement in the near future - it has already announced two reductions over the last few days because of the crisis. When the requirement returns to the pre-crisis levels, these banks will be left with a portion of the reserve requirement held because of an "excess guarantee" given for a transaction made on the capital market.
Another concern of asset managers is about banks' willingness to perform this role of providing liquidity to the corporate bond market. The BC gave conditions for these lenders to enter this market, but they have no obligation of doing that. One asset manager says that large banks have other positions for allocation. "Their treasuries will have to evaluate, in addition to these bonds, the allocation in payroll loans, microcredit, loans to small and medium-sized businesses with which they already have relations and that have higher rates, among several other initiatives that may have a bigger impact on their earnings than these bonds," the source says. This situation may make large banks not direct to corporate bonds in the volumes or rates that the market needs, since their rationale will tend to be the opportunity cost...
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