Erivaldo Rodrigues of Austin Rating reports that Brazilian bank profits in 2005 were the biggest in a decade. They were also very high by world standards.
He explains that one of the main reasons was high interest rates charged for bank loans which were at world record levels. "The average interest rate in Brazil is 29% per year, compared to the world average of 4%. In the United States it is 3.5% and in Japan it is 2.8%," he says.
As a result, explains Rodrigues, Brazilian banking profits rose an average of 44.5%, compared to 2004. "Bradesco’s 80.2% rise in profits beats all prior records," he says.
With the country’s key interest rate, the Selic, at 17.5% per year, banks kept their spread (the difference between what banks pay for money and what they loan it for) as wide as possible. At the same time there was an average expansion of loan portfolios of 21.5%.
The government has promised to reduce the basic interest rate and has done so gradually, but the reductions have not been passed on to the final consumer. The Selic did come down some, but the final cost of money did not and that explains the record bank profits, says Rodrigues.