Brazil Treasury & Banking Update

Report date: 
11 Mar 2022

Chair’s Overview

The main topic of this call, in addition to the usual update on Brazil, was to discuss the latest law on FX regulation, Law 14,286. It will come into operation in December 2022, and allows the following:

  • Holding of foreign currency on bank accounts in Brazil
  • Holding BRL on accounts outside the country, and remitting BRL to and from the country
  • Intercompany netting
  • The remittance of royalties to a foreign head office

There are other changes designed to make life simpler, which are not necessarily of interest to corporates.

The general reaction was that, while this is a move in the right direction, most people will wait and see what it means in reality. The fact that the law emphasises that all the existing – very onerous – documentation requirements will be maintained is a disappointment, and indicates that Brazil will not change: it will remain a country where it is possible to do business and be profitable, but where the administrative burden is very high.

Inevitably, this led to a lot of discussion about currency hedging policies. Participants generally prefer a fixed process, but face a lot of resistance from business units who want to time the market. The high, and rising, cost of hedging the BRL complicates this further, but most still think it should be done.

We also had a good discussion about cash management:

  • There is increasing use of boletos and PIX to manage payments and collections, especially e-boletos. These generally worked better with local banks, though experiences varied in terms of integrating these into the company’s IT systems
  • Payroll was discussed a lot: it is common for the bank which handles payroll to provide additional services, such as credit cards and favourable mortgages, to employees. In many cases, this is an expected perk. Naturally, local banks are better able to provide this service.
  • Competitive bidding for FX is complicated by the need to provide a lot of documents to complete the transaction. Many participants use Citi, but do not appreciate their refusal to use FXAll in Brazil.
  • There was a long discussion about whether it was best to execute the FX trades in Brazil, or remit the cash abroad and pay a 1.1% tax. In the view of one participant, this tax was good value, as it reduces some of the documentation.
  • Finally, there was a long discussion about the local banks, with Bradesco and Itaù frequently quoted as being very capable.

Bottom line: Brazil works – but it is hard work. The administration is burdensome and complex, but there are positive features, such as boletos. There is some scepticism about how much the new law will really simplify FX – but it is still a step in the right direction.

For all participants, this is an emerging market where there really is a positive return on the complexity and the remaining element of risk. As always, there is a wealth of useful detail in the comments below.

Contributors: 

This report was compiled by Monie Lindsey based on a Treasury Peer Call chaired by Damian Glendinning.

Countries: 
Topics covered in this report: 
Boletos, Corporate Treasury, FXall, hedging BRL, Netting, payroll, PIX
Service providers discussed in this report: 
HSBC, Santander, Citi, Itau, Bradesco, FXall

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