Looking for the Villains in Brazil’s Banking System

“Does competition exist among Brazilian banks?” This interrogation, the title of a section of the report, “Stabilization and Reform in Latin America,” issued last week by the International Monetary Fund (IMF), places the Brazilian banking system on the witness stand.

One of the parts devoted to Brazil raises questions regarding competitiveness among Brazilian banks, high interest rates, and the dearth of loans.


The IMF study points to indications that loans by Brazilian banks amount to less than half of the country’s Gross Domestic Product (GDP), as well as their concentration of power and lack of competitiveness, as explanations for the large profits they reap from their activities as financial brokers in the country.


According to the Brazilian Federation of Banks (Febraban), both the title of the section devoted to Brazilian banks and the conclusions reached in the IMF document are sensationalist in nature, because they induce readers to believe that Brazilian banks act in the form of a cartel, even though the figures presented in the study demonstrate the opposite.


According to a declaration released by Febraban’s head economist, Roberto Luiz Troster, despite the high spread in Brazil, that is, the big difference between what it costs banks to obtain resources and the interest rates they charge for loans, “the profitability of the banking sector is low.” He affirms that “the spreads in Brazil are high, but they do not translate into profits.”


The IMF analysis also suggests that the hefty profits of Brazilian banks are basically derived from the high interest rates they charge and investments in public debt instruments.


Moreover, the report states that the number of banks in Brazil has been decreasing gradually since 1995 and, consequently, bank concentration has risen, evidence by the fact that the ten largest financial institutions account for 75% of all loans in the country.


Dércio Munhoz, professor of economics at the University of Brasí­lia (UnB), concurs with the conclusions of the report, even though he considers it very superficial.


In his view, “the Brazilian banking system is not at all competitive, due to the privatization and denationalization of the banks, which only decreased their number, without augmenting the efficiency and competitiveness of the system.”


Munhoz explains that the villains of the Brazilian banking system are “the multitudinous taxes and the high rate of compulsory reserve requirements on deposits in Brazil,” which, he says, contributes to raising the level of interest rates, as well as reducing the amount of credit available for loans.


Translation: David Silberstein
Agência Brasil

Tags:

You May Also Like

Bikini Made in Brazil with an Eye Overseas

Brazilian Sur Beach Wear's bikinis and bathing suits have only just arrived in Brazil's ...

Brazil Petrobras Reaches Close to 2.4 Million Barrels of Oil a Day

Brazil's state-controlled oil company Petrobras produced an average of 1,854,748 barrels of oil per ...

A First for Brazil in 500 Years: Country Becomes a Foreign Creditor

For the first time is its over 500-year history, Brazil has become a foreign ...

Unprinciples

Justice Minister José Gregori has proposed new legislation to specify just what special status ...

Brazil’s Paulo Coelho, Live and Free, at a Computer Near You, October 11

Brazilian best-selling author, Paulo Coelho, will be discussing his books and answering readers’ questions, ...

A Global Effort to Protect the Amazon Forest

In the Brazilian Amazon basin there are currently 42 conservation units (UC’s), encompassing approximately ...

Brazil Recalls Diplomats Worldwide for Crash Course on Brazil Agriculture

Brazilian diplomats based in China, Japan, the United States, the European Union and the ...

A Club Spreads Arab Culture in Brazil

A series of cultural events are going to officially open the activities of the ...

Yes, I Have a Drunkard in My Family. Is There a Brazilian Who Doesn’t?

Alcoholism is rampant in Brazil. No wonder, you can buy alcohol practically at any ...

Brazilian President Accuses US and EU of Perverse Monetary Tsunami Against Emerging Nations

Brazilian president Dilma Rousseff criticized today the actions of the European Union and the ...