The Brazilian Monetary Council (Conselho Monetário Nacional - CMN) approved a resolution allowing banks authorized to operate in the foreign exchange market, with a minimum net worth of R$ 5 billion, to use funds raised in foreign markets to extend credit abroad. The matter is provided for in CMN Resolution No. 4033 of November 30, 2011 (Res. 4033/2011).
This credit may be granted only to Brazilian companies, its Brazilian subsidiaries and foreign companies whose largest shareholders with voting stock are directly or indirectly individuals or legal entities domiciled in Brazil. CMN also allowed these banks to acquire in the primary market securities issued by or which represent a liability of any such companies.
According to Res 4033/2011 the application abroad of foreign currency deposits of banks authorized to operate in the exchange market in Brazil is limited to the following modalities: (i) securities issued by the Brazilian government; (ii) sovereign debt securities issued by foreign governments; (iii) securities issued by or which represent liability of financial institutions; and (iv) time deposits in financial institutions. For this purpose, "foreign currency deposits" comprise: (a) the exchange position of the bank; (b) the balances observed in the current accounts in foreign currency in Brazil, opened and handled in accordance with the applicable laws and regulations currently in force; (c) other resources in foreign currency account outside Brazil of the bank itself, including those received in payment of Brazilian exports.
The banks must properly manage the assets and the liquidity and risks associated with these operations, as well as fulfill their commitments and meet the customers' interest.
The Central Bank of Brasil (Banco Central do Brasil – Bacen) shall regulate Res. 4033/2011. Among other provisions, Bacen will establish: (i) limits, information to be required and credit history of those involved in these operations; (ii) registry of information in the system of registration and settlement of assets; and (iii) performance of symbolic exchange transactions with a view to the registration of foreign capital from the above-mentioned external funding operations.
The purpose of this measure adopted by CMN is to use external credit to facilitate the internationalization of Brazilian companies at a time when outside Brazil the conditions of credit and market are considered more favorable, thus offering better conditions of competitiveness for our domestic companies in the international market.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.