BRASILIA: The government will allow Brazil's banks to convert tax credits into capital and some debt into equity during times of financial stress, in a surprising decision that came as officials laid out guidelines for the introduction of new capital rules.
Under guidelines for the implementation of Basel III rules in Brazil, central bank and finance ministry officials also said on Friday that the banking system appeared to have plenty of capital for now and the next two years.
The local bonds that will be eligible for conversion into stock are the so-called "letras financeiras" that comprise both debt and equity-like features.
The government will allow banks to use tax credits as funds that can be counted as capital if a situation of financial stress leads to losses or bankruptcy.
Currently, there are more than 110 billion reais ($55.5 billion) of tax credits on the balance sheets of domestic banks, of which they will be allowed to use no more than 60 billion reais as capital during a crisis.
The decision to allow for a softer implementation of capital rules should benefit state-run banks more than their private-sector peers as the capital waiver on deferred-tax assets will substantially decrease their need for fresh capital.
Shares of state-controlled Banco do Brasil SA, the nation's No. 1 lender, jumped 2 percent, leading Friday gains in the Bovespa stock index.
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