The Central Bank of Brazil (CBB) has announced a reduction in the percentage banks must keep as a reserve when they issue standby letters of credit (L/Cs).

The reduction is one of a suite of initiatives aimed at freeing up over US$11 billion for bank loans to boost the economy.

Lower reserves

The reduction in the percentage of reserves banks must keep when they issue standby L/Cs is aimed at making it easier for banks to provide credit for Brazilian companies' foreign trade operations.

It is also aimed at allowing more Brazilian firms to participate in bidding processes that require standby L/Cs to guarantee that firms will meet their contractual obligations.

Credit boost

Broader measures introduced by the central bank include allowing banks to use up to 60 per cent of their mandatory deposit with the CBB for new credit operations and to purchase credit portfolios.

The CBB has also relaxed banks' minimum capital requirement, a move that on its own aims to free up around US$ 6.65 billion for credit operations.

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