lthough Brazil is fortunate to have national development bank BNDES, the bank is "probably too big" now and could become a political issue in the October presidential elections, BTG Pactual CEO Andre Esteves told reporters at a conference held by financial services firm Larrain Vial in Santiago, Chile.

Esteves said that BNDES is four times the size of the World Bank and is "probably creating distortions" in the market by crowding out private sector investment in some cases and making available price information less useful. BNDES provides large amounts of subsidized lending and investment to a number of companies and sectors.

BNDES saw disbursements hit 151bn reais (US$85.8bn) in the 12 months to end-May, up 64% year-over-year, while the World Bank had US$38.9bn in disbursements between June 2009 and May 2010, a World Bank spokesperson told BNamericas.

Esteves said that other government controlled banks, such as market leading Banco do Brasil (BB) and Caixa Economica Federal (CEF), are less of an issue, given their more traditional commercial banking statuses, and are comparable to Itau Unibanco (NSYE: ITUB) and Bradesco (NYSE: BBD).
"What [BB and CEF] have been doing are natural business practices, and I don't see any distortion from what they have been doing," he said, pointing to good management and increasing levels of professionalism at BB in particular.

"BNDES is very qualified and has played an important counter-cyclical role, and Brazil is [lucky] to have such a development bank, but you can overdo it with the medicine," he added.

Giving the two main candidates' - Dilma Rousseff of the incumbent coalition led by the workers' party PT and Jose Serra of the opposition party - 50/50 odds of winning, Esteves said that the candidates may have to address the BNDES issue in their campaigns.

Current finance minister Guido Mantega said in comments last month that he expected BNDES to begin to draw down its large role to some extent in the future and would not need massive capital injections, like the 180bn reais it has received from the government since 2009.

PROJETO OMEGA, BRAIN FINANCIAL CENTER PROJECT

The BTG Pactual head said that the project by stock market Bovespa, capital markets group Anbima and banking federation Febraban - known as Projeto Omega or BRAIN - looked very promising and that the bank was supporting the project.

"We try to sponsor any initiative that will improve the financial infrastructure in Brazil," he said of the project to make Brazil a greater regional financial hub. "This will be a combination of legislation, levels of transparency, regulation, everything that is required to improve the business environment."
BTG Pactual was formed in April this year, when a group of former executives at Swiss financial services company UBS (NYSE: UBS) bought the bank back from UBS in a US$2.48bn deal. BTG's Esteves had been with what was then Banco Pactual from 1989 to 2006, when UBS bought the bank, and moved over to UBS until leaving in 2008.

James Newman