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Brazil's Itaú to buy partner BMG's stake in payroll credit venture
September 30, 2016 / 3:02 AM / a year ago

Brazil's Itaú to buy partner BMG's stake in payroll credit venture

SAO PAULO, Sept 29 (Reuters) - Itaú Unibanco Holding SA agreed on Thursday to buy Banco BMG SA’s 40 percent stake in a payroll credit joint venture for 1.28 billion reais ($393 million), confirming the dominance of Brazil’s most profitable lender in secured consumer lending.

According to a securities filing, the deal will give Itaú full control of the Itaú BMG Consignado SA venture. Itaú will pay BMG interest equivalent to the annual interbank lending rate CDI starting Dec. 31 until the deal is concluded, pending some unspecified conditions, according to the filing.

The transaction hinges on regulatory approval. Under terms of the deal, Itaú and BMG will remain partners through an accord to distribute payroll loans made by the venture, which had outstanding payroll loans of 29 billion reais at the end of August, the filing said.

Over the past four years, Itaú Unibanco has sought to grow in less-risky credit segments, where narrower spreads are charged to borrowers but the probability of defaults tends to be significantly lower than in unsecured lending.

The prudent tack has proved helpful over the past year, helping Itaú mitigate the impact of Brazil’s worst recession in eight decades and record defaults.

Payroll-deductible loans, formally created in September 2003 by former president Luiz Inácio Lula da Silva, charge lower borrowing costs than traditional loans because monthly installments are deducted from the borrower’s paycheck.

The average annual rate for payroll loans was 29 percent in August, compared with 42 percent for standard consumer loans, according to central bank data.

$1 = 3.2593 Brazilian reais Reporting by Guillermo Parra-Bernal; Editing by Kenneth Maxwell

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