MercoPress. South Atlantic News Agency

Brazil central bank takes over mid-size bank; seventh bail-out since 2010

Rio based BVA was in problems since the beginning of the year

Brazil’s central bank took control of Banco BVA SA (BVA), the seventh lender seized or bailed out by regulators since 2010, after finding violations of industry standards and deteriorating finances.

The central bank is taking “all possible measures to investigate,” the authority said in a statement, adding that it had to act against BVA because of “the deterioration of its economic and financial situation and the violations of norms that discipline the institution’s activity.”

BVA, a Rio de Janeiro-based lender that specializes in loans to mid-size companies, accounts for 0.17% of assets and 0.24% of deposits in Brazil’s financial system, according to the statement.

The central bank said last month it would liquidate Banco Cruzeiro do Sul SA, prompting the biggest Latin American bond default in more than 10 years and intensifying concern that more Brazilian mid-size banks were at risk.

The central bank named Eduardo Felix Bianchini the new manager of BVA, which has seven branches in Sao Paulo, Rio de Janeiro and Minas Gerais states.

“There are two solutions for the bank now: its liquidation or to find a new owner,” Luis Miguel Santacreu, an analyst at Brazilian rating company Austin Rating in Sao Paulo, adding “the bank didn’t have sufficient capital levels.”

Austin downgraded BVA in September to BB, meaning the bank “is vulnerable to the general and sector economic conditions,” according to the rating definition. Santacreu said the downgrade was because of a lack of information after BVA stopped reporting its earnings. The bank’s last financial statement was for the second half of 2011.

Regulators said they liquidated Cruzeiro do Sul and Banco Prosper SA, a bank Cruzeiro do Sul agreed to buy in December, after attempts to find a buyer for that lender failed. Cruzeiro do Sul was seized on June 4 and turned over to the deposit- insurance fund, known as the FGC, after regulators found violations of banking rules.

The central bank’s director for supervision, Anthero Meirelles, said on Oct. 2 that small and medium-sized banks were financially solid, and that cases like Cruzeiro do Sul were isolated incidents. Central bank stress tests showed that Brazil’s banking system would withstand sudden macroeconomic shocks.
 

However BVA was the Central Bank's third intervention in the past four months in small and medium banks.

BVA had been looking for a buyer since the beginning of the year, after the Central Bank pressured it for capitalization. Shareholders had to inject some 1 billion Reais for provisions against unpaid debts. Such provisions were not deposited or were irregularly registered.

Negotiations included FGC (Fundo Garantidor de Créditos) [Credit Guarantee Fund], which has saved many institutions from cash flow problems in the past years. The negotiations, however, did not continue.

Rumours about the bank's situation spread in the market. Last week, drafts skyrocketed and the bank started to lose funds and liquidity to face its commitments so it was intervened.