Brazil Commercial Banking Report Q3 2008

Key Issues Over the last year, the crisis in the inter-bank market and the soaring prices of oil and other raw materials tended to obscure several other important trends. In most of the developing world (i.e. the vast majority of the countries whose banking industries are surveyed by BMI), lending has been growing quickly. In many emerging markets, inflationary pressures have been boosted by a rapid increase in credit. In a number of developing markets, macroeconomic imbalances are also evident.

The figures on the tables above provide a snapshot of the banking sector in Brazil and the changes that have taken place over the last year. To place the figures in context, it may be useful to bear in mind certain aspects of the 59 countries whose banking sectors are currently surveyed by BMI. Across this sample, the median growth in assets in local currency terms was 21.3% (Colombia). The median loan growth was 21.6% (India), and the median growth in deposits was 17.9% (Brazil).

When taken on their own, the ratios of loans to deposits, assets, and GDP mean little. However, they can provide useful hints when combined with other data. Across all 59 countries, the median loan/deposit ratio was 92.3% (Greece). The median loan/asset ratio was 56.0% (Poland), whereas the median loan/GDP ratio was 63.9% (India).

In the Q308 report, we have introduced a new section that examines the risks associated with each country's banking sector in an exciting new way. We sought to ask the question: To what extent will the banking sector likely need to source funding from banks in the rest of the world over the course of 2008? Given that any answer provided is not necessarily, taken on its own, meaningful, we also examined other key issues such as the size and movement of the loan/deposit ratio, macro-economic developments and recent movements in financial markets.

Over the last year, Latin America has been a major beneficiary of the pickup in investors' appetites for risk. Yields on bonds have been falling, and the compression of yield spreads has been larger than in other parts of the world. In every one of the Latin American countries monitored by BMI, the loan/deposit ratios have been rising. Current account and budgets are, for the most part, balanced. Collectively, these banks are sourcing funds from the rest of the world in order to lend to non-bank customers.

As in previous reports, we include a SWOT analysis for Brazil. The main strengths are the absolute size of the banking sector, the industry's growth potential, and a favourable economic environment. The main weaknesses are the sector's vulnerability to a downturn in the Brazilian bond market. Brazil is notable for an extremely high loan/deposit ratio. To a greater extent than in almost any other country surveyed by BMI, the Brazilian banks depend on access to international capital markets to maintain lending, which has been growing very rapidly.

Since Q108, we have calculated, on a consistent basis, a Commercial Bank Business Environment Rating (CBBER) for each of the 59 countries surveyed. The CBBER includes an assessment of the limits of potential returns: it does this by taking into account the size, growth potential and bancassurance potential of the banking sector, as well as aspects of the economy in the preceding year, in this case 2007.

The CBBER also depends on an assessment of the risks to the realisation of potential returns: this reflects BMI's assessments of overall country risk, together with the regulatory and competitive environment.

Brazil's overall CBBER is 67.4. Within the limits to potential returns, the banking elements rate considerably higher than the country elements - with scores of 80.0 and 50.4 respectively. Within the risks to the realisation of potential returns, the banking elements and the country elements are also more highly weighted - with respective scores of 70.0 and 62.4.

" This report concentrated on the ATM machine market in China. The industry has seen a rapid growth in the past years and is said to continue in the future. The report looks at the industry developments and compares it globally. The publication includes both ATM manufacturers’ profiles and discusses risks, opportunities as well as investment strategies in the sector. "

Reviewed by AT, 06 Sept 2008