Dollar Credits: BCRA Reveals Scheme Allowing Banks to Expand Loans to Companies

The Central Bank (BCRA) detailed the regulatory framework that will accompany the expansion of dollar credits for companies announced this Thursday by the Minister of Economy, Luis Caputo. The monetary authority will establish new rules for financing granted with foreign currency deposits, following the modification of Article 23 of Decree 905/02.

The measure "will allow for the expansion of the destination of dollar credit under specific limits and prudential requirements, with the aim of preserving the solvency and liquidity of the financial system," stated the BCRA in a statement.

The central point is that loans intended for clients not previously covered by the regulation cannot exceed, in total, 15% of the foreign currency deposits of each bank. This means it will be an individual limit for each entity and not a percentage calculated on the total deposits of the system.

The BCRA specified that these financings will have a more stringent prudential treatment than other credits with similar characteristics. In terms of capital, the minimum requirement will be equivalent to 125% of that applicable to comparable financings.

Moreover, for the credit exposure limits, these loans "will count as 1.25 times the exposure that would correspond" without this special treatment. In practice, a financing of $100 will count as an exposure of $125 when calculating how much a bank can concentrate loans on a single client or economic group.

Entities will also need to assess the repayment capacity of companies under "exchange rate variation scenarios of different magnitudes." This requirement aims to reduce the risk that a company with income primarily in pesos cannot meet a dollar-denominated debt if the dollar rises.

"These measures aim to strengthen the coverage of risks assumed by financial entities and establish more restrictive exposure limits for financings covered by the new regime," the Central Bank stated.

According to the BCRA's statement, the new regulation expands the permitted destinations for applying foreign currency deposits with the purpose of "increasing available financing for private investment."

The BCRA emphasized that channeling domestic savings in dollars through the banking system allows for an increase in credit supply, boosting economic activity, productivity, and employment, while also reducing dependence on external financing.

In this regard, the agency noted that, in bimonetary economies, deeper financial intermediation helps to reduce the imbalance between domestic savings and private investment. However, it warned that the expansion of financing must develop "sustainably," safeguarding the solvency and liquidity of the system and limiting risks arising from currency mismatches of borrowers.

Among the details of the new regulation, the Government clarified that the obligation to liquidate these loans in the Free Exchange Market (MLC) remains, which is expected to represent an additional source of foreign currency.

The decision complements the announcement by Minister Caputo, who stated that it aims to generate incentives for dollars outside the financial system to enter banks and be transformed into financing for companies.

For the head of the Ministry of Finance, this is a measure that "will be well received by industries and the financial system." The official perspective is that, with this expansion of the universe of beneficiaries of dollar financing, it will generate more employment and help reactivate the economy.

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