New Measures to Bolster Brazilian Banks

The Lula government has introduced two measures, Desenrola 3.0 and a prohibition on online betting platforms, with the aim of providing relief to banks.

These initiatives are designed to stabilize the banking sector amidst growing concerns over high household debt levels.

Desenrola 3.0 shifts strategy by having the government purchase debt portfolios that banks have already written off as losses, with a required minimum discount of 90%.

The program has a budget cap of R$ 15 billion, which could mobilize up to R$ 150 billion in credit, and is considered more favorable than its predecessor by Bradesco BBI, with NuBank and Inter identified as potential beneficiaries. Goldman Sachs notes particular benefits for banks with high exposure to credit cards and personal loans.

The prohibition of online betting platforms is expected to free up family income, thereby improving their capacity to repay debts.

More than 40 million Brazilians had participated in online betting, a sector that generated R$ 12 billion in revenue during the first semester.

BB-BI and JP Morgan have issued warnings regarding moral hazard, suggesting that recurring debt renegotiation programs could incentivize consumers to delay payments in anticipation of new government bailouts.

Default rates for Desenrola 2.0 already exceeded 50% in some portfolios, and there is concern that the loss of tax revenue from betting might prompt the government to target the financial sector for compensatory tax measures, with the Central Bank already considering higher capital requirements for credit card operations.