Leasing in Brazil

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State of the market:

The state of the Brazilian leasing industry swings with that of the economy in general. In early 1990s, there was an impressive increase in volumes. In 1993, business volume grew by 65% over the previous year.

Vehicles account for the bulk of equipment leased in Brazil. After vehicle leasing comes industrial equipment and then data processing equipment. The most significant change in leasing has been that looking forward there appears to be a strong demand in two areas. The first is long term lease financing to facilitate the growing demand for investments in plant and equipment. Second, is the welcome addition of regional vendor leasing to support local suppliers.

The bulk of leasing in Brazil is done through leasing subsidiaries of commercial banks. The branch systems serve well in winning new business. New growth in leasing was expected to be between 15% and 20% in 1996 and 1997.

With a record US$12 million in new businesses in 1997, Brazil confirms that the industry is in good shape and that it has an operational and regulatory framework in accordance with its development.

By December 1997, there were 66 companies.

Operating Leases. Last February, the Central Bank of Brazil issued Resolution 2465, modifying the concept of operative leasing to be more in accord with the international understanding of this product. As a result, companies are now in the process of implementing agreements with suppliers to promote each other jointly. Significant growth in operating leasing is expected, mainly in the automobile area.

Leasing in Brazil should progress with normal development, since the opening of the market to individuals (physical persons) generated a unique one-time increase. Leasing's market penetration expressed as a percentage capital goods acquisition, has remained around 20 %.

Most of leases carry fluctuating rate of return pegged with a reference rate. Leasing with rentals denominated in dollars is also fairly common.

Leasing association:

Associacao Brasileira Das Empresas De Leasing
Rua Libero Badaro
425 -20" andar
CEO 01069-900
Sao Paulo, SP Brazil

Law and regulations relating to leasing:

Leasing companies are regulated by the central bank - only authorised leasing companies can operate in domestic leasing market. Only incorporated entities (sociedade anonima) are allowed to enter into leasing. The minimum capital adequacy standards are fixed by the National Monetary Council.

Prudential norms have been laid down by the central bank which include limits on maximum exposure in a single company, total debt ceiling, branching restrictions, etc.

Lease rentals are taken as the income of the lessor and are deductible for the lessee. Depreciation norms are generally straightline, but acceleration of depreciation by 30% is also allowed. Lease rentals are deductible to the lessee but a minimum lease tenure of 2 years has been laid down. Besides, the first year rent cannot be more than 65% of total rentals.

Accounting:

Central Bank Resolution 1103 of Dec 30 1986 regards leasing as a financial transaction and requires leasing companies to accordingly make their revenue statements.

Relevant links:

Meridional Financial Conglomerate : http://www.bozano.com.br/ibancmul.htm

Laws of Brazil: http://www.dpr.mre.gov.br/e/db000-e.htm

Brazilian financial institutions: http://www.dpr.mre.gov.br/e/cf03-e.htm#leasing

Bank Boston Brazil : http://www.bkb.com/global/brazil/credit.asp

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