Covid-19 | Updates – Emergency support measures presented by the main agents of the financial market and other matters of interest
In another round of updates, we have selected below the main economic measures launched last week by different financial markets agents to fight back the economic impacts resulting from Covid-19, as well as other matters of interest to the financial markets:
Central Bank of Brazil (BACEN) and National Monetary Council (NMC)
NMC Resolution No. 4,805 of 04.23.2020
- it allowed financial institutions to raise funds through Term Deposits with Special Guarantee (DPGE) from institutions associated with the Credit Guarantee Fund (FGC). Funding will be guaranteed by the FGC up to a maximum amount of R$ 400 million of the total credits of each institution against the issuer (institution or conglomerate) of the DPGE;
- for other entities, the maximum guaranteed amount of R$ 40 million will be maintained, as recently approved by Resolution BACEN No. 4,799, of 06.04.2020; and
- the measure aims at facilitating the capital flow among the institutions associated with the FGC in the financial system, allowing the resources to more easily reach all participants in the system.
Circular BACEN No. 4,006 of 04.22.2020
- it changed the BACEN Circulares Nos. 3,644, dated 03.13.2013, and 3,748, dated 02.27.2015, relating to the calculation of the capital requirement of exposures subject to credit risk using a standardized approach (RWACPAD) and the methodology for calculating the Leverage Ratio (RA), respectively;
- it improved the prudential requirements applicable to financial institutions, to reflect the features of credit operations under the Emergency Employment Support Program (PESE);
- it determined that the share paid by the Federal Government in the credit operations contracted under the PESE will not be counted as an exposure of the financial institution, for purposes of RWACPAD and RA; and
- it aligned the terms provided in the Provisional Measure No. 944, dated 04.03.2020, preserving the economic incentive of PESE, in order not to interfere in the prudential treatment related to resources funded by the financial institutions within PESE.
Caixa Econômica Federal Bank (CEF) and Brazilian Micro and Small Business Support Service (SEBRAE)
CEF and SEBRAE launched a special working capital financing line in the amount of R$ 7.5 billion, aiming at micro and small companies, with the following main features:
- MEI – Individual microentrepreneurs: (i) Maximum amount per CNPJ: R$ 12,500; (ii) Grace period: 9 months; (iii) Amortization: 24 months; and (iv) Interest Rate: 1.59% per month;
- ME – Micro-companies: (i) Maximum amount per CNPJ: R$ 75 thousand; (ii) Grace period: 12 months; (iii) Amortization: 30 months; and (iv) Interest Rate: 1.39% per month; and
- EPP – Small Companies: (i) Maximum amount per CNPJ: R$ 125 thousand; (ii) Grace period: 12 months; (iii) Amortization: 36 months; and (iv) Interest Rate: 1.19% per month.
Brazil Northeast Bank (BNB)
Based on BACEN Resolution No. 4,798/2020, BNB will automatically extend the financing installments of the debts of the Constitutional Financing Funds of the Northeast (FNE) for micro, small and medium-sized companies, in up to 12 months;
Additionally, on 04.23.2020, BNB launched the special FNE credit line, in the amount of R$ 3 billion, based on BACEN Resolution No. 4,798/2020, which has the following main features:
- working capital financing, limited to R$ 100 thousand per beneficiary, and investments financing, limited to R$ 200 thousand per beneficiary;
- interest rate of 2.5% per year;
- term for repayment: (i) working capital line, 24 months; and (ii) for the investment line, it will follow the deadlines set out by the Deliberative Councils of the Constitutional Funds; and
- 12.31.2020 is the deadline for contracting all credit lines and applying for the grace period.
Judicial Decision of the Regional Court of the 1st Region (TRF-1)
By means of a request presented by the Federal Government and BACEN, the Appeals Court Judge, Italo Sabor Mendes, President of the TRF-1, determined:
- the suspension of the judicial decision issued by judge Renato Coelho Borelli, of the 9th Federal Court of the Federal District (DF), which had determined that all institutions of the National Financial System (SFN) should refrain from increasing the interest rate or intensifying the requirements for granting credit during the public calamity period due to the COVID-19 pandemic.
The Appeals Court Judge has stressed in its decision that:
“In addition to the possibility of serious injury to the public economy, due to the interference of the Judiciary in the liquidity of the financial system, in the supply of credit and in the limit of interest rates practiced in the market, urgent protection may also produce an effect contrary to promoting productive credit. ”
Our team of Project Finance, Credit Operations, Banking Law and Capital Markets will be available for any clarification required and to assist in respect of the above measures.