Banking system in good shape

THE EFFECTS of the 1999 devaluation linger but, unlike the Asian tiger economies in 1997 and, more recently, the woeful situation of neighboring Argentina, Brazil has avoided a crisis in its banking system.
In fact, it’s in good shape. Last year the banking sector achieved a robust growth in profits of above 22 percent, based on the returns from 10 leading banks. As this year draws to a close, banks are in a position to capitalize not
only on sectoral stability but also on renewed business confidence.

Arminio Fraga, President of the Central Bank, says the level of capital in Brazilian banks is above the world average, as well as higher than the Central Bank’s own requirements. The large volume of reserves in the banking sector could “irrigate the economy” and provide for healthy growth, he adds.
Brazil is also the world’s second-largest e-banking market after Norway, according to Marcelo Tonhazolo, Internet Director of local bank Unibanco. Despite Brazil’s low internet penetration of around 10 percent, about 24 percent of Internet users have made at least one online banking transaction, he says.

Holding nearly one-third of the market, foreign banks too have proven agile in both the retail and wholesale segments. They rapidly increased their presence through acquisitions during the 1990s, and now have more than 27 percent of the market. ABN Amro, for example, plans to open another 40 branches.

JORGE EDUARDO PRADA LEVY President of the Brazilian Banking Association

“We have a very solid and stable financial system,” says Jorge Eduardo Prada Levy, President of the Brazilian Banking Association (ABBC). “Credibility is very important for the industry, and this positively influences the way in which Brazil is evolving in international business and international relations.”
The introduction of the modern Brazilian Payment System (SPB) has also proven to be successful, not only in speeding up clearance between banks but also in the sector’s international standing, says Mr. Levy.

The SPB is essentially a high-speed, computerized clearance system between the banks, enabling them to make online payments to each other. This real-time system has greatly improved banks’ efficiency, and enables them to avoid the lengthy clearing system at the end of each working day.

“The ongoing consolidation in the industry is also going to help,” Mr. Levy adds. State-owned banks that were not in good shape have been undergoing restructuring in preparation for privatization.
“We have one of the most efficient financial systems in the world for services,” he continues. ““Brazilians trust most of their economic lives to our banks. They leave most of their economic operations in their hands, including payments, billing, mutual funds and insurance.

“The rendering of services is the business that all the banks are looking at and for that, scale is very important. Local banks are more prepared because they have an extended network of branches.”
Most of ABBC’s members are small to medium-sized banks, says Mr. Levy. “Basically, they are looking for shared services in order to reduce their costs,” he says. “ABBC is providing, through an agreement with the service providers, the infrastructure, services and software in order to allow cost reductions for small banks.”