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Banks in Brazil

Page history last edited by Brian D Butler 9 years, 9 months ago







Table of Contents:


Related GloboTrends page:  lending to Brazilian companies


Biggest Banks in Brazil:






Commercial lending Rates

The average annual interest rate Brazilian banks charged customers rose to 44.1 percent from 42.9 percent in October, the central bank said on Dec. 23


see Brazil macroeconomic profile




01/2009:  Itau - partly owned by Bank of America...who recently sold stake in China, is rumored to might need to sell stake in Brazil...caused Itau shares to fall.... especially since BoA  "may no longer want to keep its shares in Itau after the largest U.S. bank expanded its business in Latin America through the acquisition of Merrill Lynch & Co, said Mario Pierry, a New York-based analyst."...plus Itau was not a strategic acquisition for them, but rather..."Itau was a legacy position that they had from the BankBoston days.”  source:  http://www.bloomberg.com/apps/news?pid=20601013&sid=a93N9DFpV3G8&refer=emergingmarkets



Consolidation after the credit crunch:



Banco do Brasil SA said it plans to buy a 50 percent share in the finance division of family owned Grupo Votorantim.  Votorantim Finances SA is Brazil's eighth-largest private bank and a major lender to corporations....they are suffering from derivative currency bets gone wrong from late 2008.



11/2008: As a result of the Credit crisis of 2008, we see consolidation... Itau and Unibanco agreed to merge and form the largest privately sector bank in Brazil (and in South America).   Formerly the second and third largest banks in Brazil, Itau and Unibanco will be the first major consolidation in Brazil's banking sector as a direct result of the credit crisis.  The new bank will be one of the top 20 banks in the world.


The question is:  "why now?".  What was it about todays market that drove to "healthy" banks (with solid capitalization and good loan portfolios) to suddenly merge their operations?     The fact is that global credit conditions are very tight, and both banks face a macro environment of higher financing costs going forward.  The thinking is that a larger bank with a larger deposit base should be better able to fund operations at a lower cost.


After the Itau/ Unibanco merger we should expect to see further consolidation of Brazil's banking sector.  The former market leader in Brazil, Bradesco will likely go out shopping for acquisition targets to regain the #1 position.   But beyond the titans of Brazilian finance, the largest opportunity for banking consolidation will come from the 100's of smaller banks.


Industry fragmentation:  Brazil currently has over 150 banks, most of them very small.   In fact, the largest 10 banks account for over 90% of cash deposits, with the remaining 140+ being small banks with less than 10% of national deposits.  In response to the global credit crunch, analysts expect that many of these smaller banks may need to either merge or be bought out by one of the larger institutions.


Standard Chartered buys up Lehmans operations in Brazil:Following Lehman’s collapse in September, Standard Chartered bought the bank’s operations in Brazil, increasing local staff in the country by 50 percent to 42, according to a company press release. The London-based bank’s business in Brazil targets exporters with ties to the Middle East, Africa and Asia, their core market, Grimeh said.  see Standard Chartered




Response to Credit Crunch (by Brazilian Government):


Regulators encourage consolidation: In response to the mounting pressures on smaller banks in Brazil, the Brazilian government has encouraged Banco do Brasil to take ownership stakes though equity in smaller banks in Brazil. 


Easing Liquidity concerns:  With credit conditions tightening globally, the Brazilian central bank has been very proactive about trying to pump extra liquidity into the markets.   Importantly, they have eased the reserve requirements (even eliminating it for smaller banks), which has released up to R$100 billion reais into the banking system (about $50 billion USD).   Controversally, the Brazilian central bank also decided to eliminate interest payments on reserves held at the central bank.  On the positive side, this helped motivate banks to take money out of reserves, and put it to work in the banking system (easing liquidity crunch concerns).  But, on the negative side, this move had the impact of hurting larger banks that have reserves at the Central Bank as it decreases the amount of interest income that banks have coming in on reserves, and likely gives large banks the incentive to raise interest rates to consumers in order to make up for the lost interest on reserves.




Challenges for Brazil

  • see GloboTrends blog post here:  http://blog.globotrends.com/?p=210
  • On the other hand...there are some positives: 


    In 2008, Brazilian banks "only" had 40% of GDP in domestic loans...relatively low, and a good indicator that Brazils banks were not overly exposed to the global credit crunch.  Also, Brazils banks only relied 10% on foreign funding.  Another good sign.








Global Credit Crisis:  impact on Brazilian Banking:


11/2008:  Brazil is benefitting from the fact that their banks were (forced to be) conservative.  As a result of surviving through recent banking crises of their own, the Brazilian banks were not overly exposed to  high leverage and financial innovations as many other countries banks were.   After the crisis in the 90's, tough banking regulations were passed in Brazil.   An example of such regulation was a rule making controlling shareholders infinitely liable in the event of a banking collapse.  This kind of motivation helps keep Brazilian bankers from taking excessive risks.


Brazil's banks are in a similar position today as Japans in that they were forced to sit on the sidelines during much of the past decade due to a financial crisis in the previous one.  As a result of missing out on the derivatives and mortgage backed securities boom in the early 2000's, Brazils banks (like Japans) are now in a much healthier position than many other banks around the globe.  (Unfortunately for Brazils banks however, the currency has depreciated by about 30%, and major indusrial companies are facing troubles with falling commodity prices, and hedging bets gong wrong). 






Investment Grade status (helps Brazil through the Credit crisis): 


05/2008:   Brazil recetly achieved "investment grade status", which should help banks extend credit to consumers and private enterprises more freely.  Some experts expect the mortgage market to flourish.  Areas such as insurance and long-term investment remain underdeveloped.   Segments such as asset management, derivatives, underwriting, and M&A advisory services could be expected to emerge as well.


Market entry strategy alternative for the multinationals might be to participate in the eventual privatization of the remaining state-owned banks or to enter into a partnership with a dominant domestic bank whose controlling shareholder (typically a family) seeks liquidity and diversification.


Despite the general improvement in financing conditions, credit for Brazil’s middle-market companies, small businesses, and individuals remains among the most expensive in the world.



Foreign Banks in Brazil


10/6/2007:  Banco Santander will take ABN Amro's Brazilian business and become one of the largest banks in Brazil.  read more:  here




Credit - lower in Brazil than in other countries


Although credit has been growing fast, it still amounts to only about 40% of GDP—a much lower figure than in developed economies. That is partly because reserve requirements and interest rates are the highest in the world.




Macro Economic Position


The good news is that the government previously retired most of its dollar-denominated debt before the credit crisis of 2007/08 hit.. This means that at least currency depreciation does not trigger fiscal problems.


This time around...its the private sector that is heavily indebted...not the public one:  source



see our discussion on :  Brazil: Economy  and Brazil macroeconomic profile




Banks in Brazil


Privately run banks:


1.  Itau Unibanco Holding: 

  • as of 11/2008...
  • 4,800 branches. = 18% of Brazils banking network
  • 14.5 million account holders = 18% "
  • Funds under managemnt = 21% Brazilian market


2.  Bradesco


3.  Foreign Investments:  in 2007, Spain's Banco Santander bought Banco Real from ABN AMBRO, a Dutch bank, turning it into Brazil's third-largest private lender.



Government owned Banks


Banco do Brasil S.A.

is a major Brazilian bank headquartered in Brasília. The bank was founded in 1808 and is the oldest surviving bank in Brazil — one of the oldest of Latin America.


Banco do Brasil is controlled by the Brazilian government but its stock is traded at the São Paulo Stock Exchange and its management follows standard international banking practices (Geneva Convention). Since 2000 it is one of the four most-profitable Brazilian banks (the others being, Bradesco, Banco Itaú, and Unibanco) and holds a strong leadership in retail banking.



Banco do Brasil was founded by the regent-prince João VI of Portugal to finance the public debt. It went bankrupt two times in history: one in 1821, when the regent-prince returned to Portugal taking with him the bank's assets, and the second in 1898.


From 1821 to 1967 Banco do Brasil was the monetary authority, issuing banknotes, regulating foreign commerce and serving as National Treasury holder for the government. It gradually lost its power with the creation of the Central Bank of Brazil in 1967 and the separation from National Treasury in 1987.


From 1992 onwards it was restructured as a commercial bank, using its huge geographic distribution and credit assets to leverage its redesign as a "normal" bank. In the process, tens of thousands of workers were laid off — most of them unskilled for any other job, many of whom expected to remain at the bank until retirement.


After decades of losses financed by the public treasury, the bank became very profitable and is one of the key structures used by the government to finance public programs, like "Fome Zero" (Zero Hunger) and DRS (Sustainable Regional Development).


International users

Accounts are intended for residents (temporary or permanent) of Brazil. As with any other banks in Brazil, documents required to open an account are:


a CPF registration;


The array of services is huge with complex lists of taxes and automatic charges, and most services are described in Portuguese only. A security system requires that each computer be registered for use with advanced internet functions, and for this an auto-attendant password (and other passwords) must have been previously set up at the branch.


Banco do Brasil has a few branches in the USA (New York, Miami) and other countries. However, these branches are intended for use only by large companies and for permanent residents of Brasil who visit the other countries.'






Interest rates

Interest rates on loans vary to a great extent. A new applicant for a Visa or Mastercard credit card account, or somebody who overdrafts a checking account (within a pre-specified limit) can expect to pay well over 200% annual interest; whereas an account holder with more history can have much lower interest rates, perhaps as low as 50% on a credit card, or 24% on an income-secured or asset-secured ATM loan. High interest rates in Brasil also mean high returns on fixed-income low-risk investment accounts available automatically through the ATM. Potential high inflation is also a consideration, although Brasil has had its inflation under control (around 6% per year) between 2000 and 2006.


Banco do Brasil is not the only Brazilian bank with high interest rates. The Economist "Survey of International Banking" of 20 May 2006 reports that the average Brazilian interest rate on credit cards is 222%, even though inflation is under control, expected to be 5% for 2006. Collusion is suspected, but an economist from the Catholic university in Rio de Janeiro says it may be market segmentation (charging different prices to different sets of customers to absorb some consumer surplus). Brazilian interest rates are about 50% higher than interest rates in other developing countries.


One of the reasons for the large array of automatic services (loans, payments, investments via ATM, telephone, or internet) is that because of historical high inflation (even hyperinflation of over 100% per year) and high interest rates in Brasil, the country has developed an array of automatic payments systems, with the ability to pay an electric bill, for instance on the "day before" the due date, and the ability to parcel credit card charges from merchants into 2 to 12 monthly installments each charged to the credit card. Merchants offer this option in advertisements and price signs throughout the stores, and offer a discount for charges "à vista" (paid all in one charge). This discount usually reflects a much lower effective interest rate than the rates on the credit card accounts, making this a popular option in Brasil. Banco do Brasil offers a "grace period", letting account holders pay the entire balance just before the due date with an automatic payment from the checking account, and not charging any interest. In conjunction with the parceled charges offered by merchants, this gives account holders a chance for much lower effective interest rates.





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