SAO PAULO Wed Feb 25, 2015 9:01am EST
Petróleo Brasileiro SA's decision to cut capital spending plans by $16 billion this year could hamper Brazilian banks with loan exposure to the oil and gas industry, especially state-controlled Banco do Brasil SA, analysts at Goldman Sachs Group Inc said on Wednesday.
Spending cuts by Petrobras, as the company is known, may already be affecting the ability of some suppliers and service providers to service their debts, Goldman analysts led by Carlos Macedo said in a client note.
Guidance provided by Brazil's top banks that was unveiled prior to the spending cuts, and consensus earnings estimates may not be capturing that risk, the note said. Banks excluding state development bank BNDES have a 114.6 billion real ($40.2 billion) exposure to the domestic oil and gas industry.
Goldman Sachs estimates that Banco do Brasil, Brazil's largest bank by assets, has 7.4 percent of outstanding loans parked with the oil sector, totaling 50.68 billion reais, followed by Grupo BTG Pactual SA's (BBTG11.SA) and Itaú Unibanco Holding SA's (ITUB4.SA) 5.5 percent exposure, respectively.
The note underscores how asset quality has become a central issue for investors following Brazilian banks in the wake of "Operation Car Wash," the name given to the corruption scandal afflicting Petrobras. Rules preventing banks from detailing their exposure to specific firms make it difficult to assess a deterioration in the quality of a specific bank's loan book, Macedo said.
"Our concerns lie with the asset quality issues that could emerge for Petrobras’ suppliers and service providers," the note added.
Moody's Investors Service stripped Petrobras of its investment-grade ratings on Tuesday, citing concerns about liquidity and the corruption probe.
Regardless of the outcome of the corruption probe in coming months, banks face additional risks related to Petrobras' planned 26 percent reduction in operating expenses, some of which could be permanent, the note added.
Macedo said banks in Brazil provide no information on provisioning levels on a sector-by-sector basis and their financial reports lack clarity on the amount or quality of collateral that is pledged for these loans.
Shares of Itaú fell 1.6 percent on Wednesday. Banco do Brasil sank 3 percent, while BTG Pactual dropped 0.9 percent.