Some investors are questioning to what extent commercial banks will step in to finance infrastructure projects in Brazil as the national development bank BNDES reduces subsidized lending.

“As the public sector makes a pull back, I think private banks will be relatively conservative in the construction sector,” Jacob Steinfeld, managing director at JPMorgan Emerging Markets Credit Trading, said at the Debtwire Emerging Markets Investors Summit in New York. “Infrastructure will remain weak.”

BNDES has said it will no longer provide bridge loans for infrastructure concessions and PPPs. It has also said it will provide long-term funding for 40% to 50% of investments in federal highway concessions, down from up to 70% in previous years, and 40% of investments in airport concessions.

Banco do Brasil plans to lead syndicates of commercial banks to fund construction, and then BNDES and FI-FGTS, an infrastructure fund managed by federal savings bank Caixa Econômica Federal, could provide the long-term financing by underwriting up to 50% of infrastructure bonds issued by concessionaires.

“We’re going to see a changing mix,” Steinfeld said. “Hopefully, with the economy growing again, [commercial banks] will be more willing to lend but they were very conservative in the years that public lending was growing.”

BNDES charges a spread on the TJLP long-term lending rate, which stands at 7.5% per year, while commercial banks base their rates on the Selic benchmark, which is now 13.75%. “In a rising interest rate environment, it’s going to be difficult to raise the capital to reinvest,” Steinfeld said.

A likely investigation into BNDES’ lending practices, stemming from the Lava Jato corruption probe, looms on the horizon and it could bring Brazil’s infrastructure investments plans to a halt, said Robert Rauch, a senior partner and emerging markets distressed portfolio manager at Gramercy Funds Management.

“You can’t expect bad news in the private sector that is not tied to BNDES and all its lending,” Rauch said. “If BNDES comes under the crosshairs… there is no one to pick up the pieces. Without the big banks, there is going to be a huge hole,” he added.

An investigation into BNDES will certainly have an impact on the Brazilian economy because the bank will likely curtail lending during the inquiry, Rauch said.

According to Daniel Freifeld, founder of the US investment firm Callaway Capital Management, the corruption investigations at BNDES could surpass those at Petrobras. “I don’t think even Brazilians want to take a look,” he said.

BNDES has already blocked $4.7bn in loan payments to engineering firms involved in the Lava Jato probe, including Odebrecht, OAS, Queiroz Galvão, Camargo Corrêa and Andrade Gutierrez. It could also cancel close to $13.5bn in export finance loans. Some of the companies accused of bribery, such as Odebrecht and Andrade Gutierrez, have signed leniency agreements but still lack access to the financial markets.

“An infrastructure company needs banks to finance projects,” Steinfeld said of Odebrecht. “The question is, two or three years down the line, what banks will be willing to do business with them?”