Fitch Ratings said on September 30th that private local banks and investors are expected to assume larger roles in financing Brazil's growing infrastructure needs as government-sponsored lending sources may face limitations under any newly elected government.

According to Ficth, this shift towards more private bank and capital markets financing comes as Brazil's government-sponsored Banco Nacional de Desenvolvimento Economico e Social (BNDES) reduces the speed of financing infrastructure projects.

BNDES has long been a key competitor to Brazil's private banks, which have not been able to compete with BNDES's below-market rates for infrastructure projects.

Brazil's private banks infrastructure financing exposure had represented about 12%-17% of the total loan portfolio. This exposure has been mostly letters of credit, guarantees, and bridge-loans, but not direct lending.

Fitch Ratings reported in a statement:

Tackling government spending is expected to be a key agenda item for new leaders following Brazil's elections. We believe that a scenario of lower government expenditures could eventually lead BNDES to expand its infrastructure credit at a slower pace in the long term. Market estimates for infrastructure funding needs over the next three to four years are vast, reaching upwards of BRL 1 trillion, primarily in energy, telecommunications, railways and roads. Given the high financing need relative to the bank's modest returns and existing capitalization, we see the BNDES as having a more constrained credit appetite for projects over the medium to long term.

Fitch also said that among the challenges facing private banks as they assume a larger role in infrastructure financing is achieving a longer term funding mix.

Fitch believes that supplementing project funding with domestic capital market issuances would be more favorable for bank credit quality.