UPDATE 1-BNDES, Caixa banks get Brazil gov't capital boost

Fri Aug 27, 2010 7:36pm GMT

* Brazil govt will boost BNDES by 4.5 bln reais

* Funds to Caixa Economica to total 2.5 bln reais

* Petrobras shares used for capital injection (Updates with comments from BNDES president)

BRASILIA, Aug 27 (Reuters) - Brazil's federal government on Friday injected a total 7 billion reais ($4 billion) into the capital base of state-controlled banks BNDES and Caixa Economica Federal, as both firms are poised to lend a record amount this year.

The federal government will cede 4.5 billion reais worth of voting shares in state-controlled oil company Petrobras (PETR4.SA: Quote)(PETR3.SA: Quote) to development lender BNDES as part of the plan, according to a post in the official gazette. About 2.5 billion reais worth of Petrobras stock will be transferred to Caixa, which is Brazil's largest mortgage lender.

The decision underscores President Luiz Inacio Lula da Silva's wish to strengthen the balance sheet of state lenders so they can ramp up lending beyond the end of his term in December. BNDES is expected to lend a record 150 billion reais this year, while Caixa has already signaled that loans will end the year at an all-time-high.

Lula has instructed the BNDES and Caixa since the onset of the global financial crisis in 2008 to help fund about 1 trillion reais of infrastructure projects as well as the creation of home-grown conglomerates to boost job creation and economic growth.

"The bank, which has grown a lot, needs to strengthen its capital base in order not to face lending strains," said Laciano Coutinho, president of Rio de Janeiro-based BNDES, in a press conference in Sao Paulo.

The announcement comes amidst controversy over funding for the BNDES, which has seen a capitalization of around 180 billion reais in the past 18 months in what the government has said was a crucial move to keep credit flowing in the economy during the global financial crisis.

The numbers signal that they have continued to accelerate lending, despite government pledges earlier in the year to slow them down.

Explosive credit growth in Brazil has been singled out by analysts as one of the reasons for an economic overheating in recent months.

Coutinho rebuffed that assertion, saying that trimming credit flows now would lead to a decline in investment and an economic slowdown.

The capitalization, which is still subject to approval of both lenders' board of directors, also comes at a time when Brazil's government is already struggling with deteriorating fiscal accounts.

Rising government spending has weighed on the country's primary budget -- which investors use as a gauge of a country's ability to service its debt -- even as tax revenues have remained solid.

($1=1.751 reais)

(Reporting by Isabel Versiani in Brasilia and Silvio Cascione in Sao Paulo; Writing by Ana Nicolaci da Costa and Guillermo Parra-Bernal; Editing by Andrew Hay)

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