Brazil’s central bank assumed control of the operations of struggling Banco Santos on November 15 after the latter was ordered to provide R$700m ($251m) to cover defaulted loans, a sum that exceeded its ability to pay by R$100m.
In terms of size, Banco Santos is ranked 21st among Brazil’s financial institutions and serves mainly small to medium-sized companies. It had failed to raise the sum to make required deposits to the central bank.
Vanio Cesar Aguiar, head of the central bank’s supervision department, will run Santos in the interim. He is expected to conduct an investigation of financial affairs and issue a report on his findings within 60 days, proposing a solution – if one can be found – to financial defaulters.
One possibility is for the central bank to request that Santos shareholders provide more capital. If no solution is found, the bank will either be liquidated or declared bankrupt, government officials said.
Santos, whose assets are valued at about R$6.3bn, was taken over to prevent it from a possible default to private creditors, the officials added.
Standard & Poor’s withdrew the bank’s debt rating in February following a request by Santos executives.
Despite the move, analysts in Brazil and elsewhere predicted Banco Santos’s problems were unique and it was unlikely another bank would face a similar fate in the near future.
“The Brazilian banking sector is very adept at handling the milieu of problems that come its way,” said Andy Naranjo, a professor of finance at the University of Florida, who specialises in Latin America.
“Banco Santos’s problems are serious but they should not be viewed as a systemic problem with what is a resilient banking system.”
