Brazil’s Lula Confesses Obsession: Cutting Bank Spreads

Brazilian real Brazilian Aldemir Bendini is the new chief executive of federally owned Banco do Brasil. His mission is to boost lending in the country's financial system and lower borrowing costs. A Banco do Brasil veteran who was previously in charge of its credit card and new retail business, Bendini succeeds Antônio Francisco de Lima Neto as CEO.

"Public banks have the fundamental task of increasing credit and competition," Finance Minister Guido Mantega said at a news conference. However he denied there was political interference in the CEO decision.

Lima Neto offered his resignation to Finance minister Mantega earlier in the week. His successor is expected to take over on April 29. Under Brazilian law the president, in this case Luiz Inácio Lula da Silva, has the authority to name and remove the bank's administrators.

Since the world economic crisis began to slow Brazil's economy last year, Lula has often mentioned the need for banks to slash commercial lending rates to boost economic activity.

In February, he called for rate cuts to "fit with the new reality" of a credit crunch that had dried up loans and increased commercial interest rates across the world.

Pressure to cut rates has mounted since Brazil's unemployment rate reached 8.5% in February, with labor leaders complaining that high lending rates were causing credit-strapped companies to eliminate jobs.

Analysts are predicting Brazil's economy will contract this year, increasing the likelihood that its central bank will keep cutting its benchmark lending rate. Commercial banks must follow suit, President Lula has repeatedly insisted.

"The reduction of bank spreads at this moment is an obsession," Lula da Silva said, referring to the difference between the interest rates banks charge borrowers and pay out to savers.

Since Banco do Brasil is 66% government owned, it already offers far cheaper loans than most of Brazil's commercial banks, charging an annual rate of 28.2%, compared to 55.9% at Itaú Unibanco Banco Múltiplo S.A., the country's largest bank.

But state-run banks should do more to help get credit flowing again, Finance Minister Guido Mantega said: "In this moment of crisis, public banks have a vital role to fill."



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