OREANDA-NEWS. Brazil's decision to repay National Treasury debt owed to federally owned banks is positive for the banks as it imposes a new level of segregation between the government and these financial institutions, says Fitch Ratings. The decision will have a small effect on the banks' liquidity but prevents them from accumulating high amounts of Treasury receivables on their balance sheets.

If the payment is approved, the liquidity of Brazil's largest federal government-owned banks, Banco do Brasil's (BdB) and Caixa Economica Federal's (Caixa) may benefit from the move sooner than Banco Nacional de Desenvolvimento Economico e Social (BNDES). BNDES may account for the return of the receivables by netting its liabilities due to the Treasury.

The Federal Accounts Court's (TCU - Tribunal de Contas da Uniao) rejection of the 2014 national accounts earlier last month triggered the government's decision. TCU considered the accumulation of Treasury debt at BNDES, BdB and Caixa -- a practice known locally as "pedaladas" -- a violation of fiscal responsibility law (Complementary Law 101).

All three banks' receivables from the Treasury grew significantly since 2011. BNDES has the largest outstanding balance, most of which is related to the government's flagship subsidy program to support investment in the Programa de Sustentacao do Investimento (PSI). BNDES has been the main financial agent for the program since its launch in 2009. At June 2015, BNDES's receivables from the Treasury totaled BRL27 billion, of which BRL24.5 billion was related to PSI. At December 2011, it totaled BRL8 billion.

The increase in two other state-owned banks' receivables was similar, although the outstanding amounts were lower. The bulk of BdB's receivables from the Treasury are related to the government's subsidized agricultural lending programs. At June 2015, BdB's total receivables from the federal government, including the Treasury, stood at BRL18 billion, up from BRL1 billion at December 2011. At Caixa, the receivables are mainly related to the Minha Casa Minha Vida social program. At June 2015, Caixa's total receivables stood at BRL5 billion, up from BRL1.5 billion at December 2011.

The government decided to pay its obligations with funds that became available following the National Monetary Council's (Conselho Monetario Nacional) recent reduction of the 2015 budget for PSI to BRL19.5 billion. The budget for 2015 was originally slated at BRL50 billion in December 2014.

The ratings of BNDES, Caixa and BdB are based on sovereign support and are equal to Brazil's sovereign ratings. Their ratings would be affected by potential changes in the sovereign ratings or the federal government's willingness to provide support.