Bank May Class Loans to Brazil as Delinquent

Citicorp said today it might have to designate $3.9 billion in loans to Brazil as delinquent, which would sharply cut into the giant banking concern’s earnings.

Citicorp, Brazil’s biggest U.S. bank lender, said it was considering the action in light of Brazil’s decision last month to halt interest payments on about $70 billion in bank debt and freeze short-term interbank credits.

The disclosure by Citicorp, the biggest U.S. bank holding company, could indicate it expects lengthy debt negotiations with the financially troubled nation.

Citicorp had $4.6 billion in loans outstanding to Brazil at the end of 1986.

Refinancing Negotiations

The company said in a news release that it expects the payment moratorium to last until the end of negotiations between Brazil and its creditor banks over refinancing of the debt.

“This action and future circumstances may require Citicorp to place $3.9 billion of intermediate and long-term Brazilian loans on a cash basis,” Citicorp stated.

When corporations place loans on a cash basis, they account for payments on the loans only as they actually are received, rather then when they are due.

Citicorp places loans on a cash basis when interest is 90 days past due.

Citicorp Chairman John Reed in the past has taken a hard line against concessionary debt refinancings with developing nations, arguing that concessions only delay their return to regular borrowing channels.