Brazil Commercial Banking Report Q1 2009
Business Monitor International, March 2009, Pages: 41
BMI's Brazil Commercial Banking Report provides independent forecasts and competitive intelligence on Brazil's commercial banking industry.
In mid-September we raised our 2008 real GDP growth forecast for Brazil to 5.2% from 4.7% on the back of higher-than-expected Q208 economic growth, which came in at 6.1% year-on-year (y-o-y). With growth at 6.0% y-o-y during the first six months of 2008, we believe that robust domestic demand – primarily household consumption – fuelled by rapid private sector credit growth, will keep economic growth this year above the 5.0% mark. However, the rapid rise in interest rates seen in recent months along with slowing demand for Brazil’s commodities point to an economic slowdown in 2009. Indeed, we have already revised down our growth forecast for 2009 to 4.0%, from 4.7%, earlier in September.
That said, we now feel that liquidity conditions in Brazil will be even tighter than initially assumed as in addition to rapidly rising interest rates, drying up liquidity on international money markets will further affect lending in the Brazilian financial system going forward. This in turn will rest on overall consumption and the economy, prompting us to revise down our 2009 real GDP growth forecast to 3.5%. We now expect household consumption growth to come in at 3.6%, down from a previous projection of 4.8% earlier this year. By the same token, we now see gross fixed capital formation growth declining to 6.5% in 2009, as opposed to our earlier forecast of 7.6%.
This report is being written at a time when the global financial crisis – which arose as a result of the evaporation of inter-bank liquidity – has moved into a new phase. Stock market participants appear, reasonably, to have taken the view that the policy responses taken by governments, central banks and multi-lateral institutions will be sufficient to prevent a total collapse of the global financial system.
Instead, stock market participants are focusing on the impact of a near-global recession on the earnings of non-financial companies. The number and size of stand-by facilities agreed by the IMF since early mid-October supports our view that, of the emerging markets whose commercial banking sectors are surveyed by BMI, the countries of Central and Eastern Europe are those whose economies are most at risk of suffering adverse affects as a result of the global financial crisis. This is partly because the macroeconomic imbalances are relatively severe and partly because the Central and Eastern European countries are more directly affected by the brutal recession that is unfolding in wealthier member states of the European Union.
As yet it has not been possible to collate hard numbers as most of the countries whose commercial banking sectors are surveyed by BMI clearly quantify the impact of the global financial crisis on the banks. In a later section that highlights the changes that we are making to this report, we again include a lengthy essay which attempts to identify the key issues. In essence, in the emerging markets – and, indeed, the developed countries – of the Asia-Pacific, commercial banks appear to be well placed to deal with the crisis. The same is broadly true of commercial banks in the various countries of the Middle East and North Africa. In Latin America, Chile, Brazil, Mexico and Colombia appear better placed than Argentina, Venezuela, Bolivia and Ecuador. South Africa’s situation appears to have much in common with that of Brazil. In contrast, Nigeria faces some of the same challenges that confront Venezuela. The positions of most countries in Central and Eastern Europe, however, are alarming.
From Q209 we will include data that pertains to late 2008 and will extend forecasts out to 2013. We will also incorporate much greater discussion of the various protagonists in each country’s commercial banking sector and a number of new features. We believe that the figures we compiled in mid-2008 provide insights as to how the various commercial banking sectors will fare in the current, extremely uncertain, environment. We have, therefore, left them essentially unchanged. The figures on the tables above provide a snapshot of the banking sector in Brazil prior to the onset of the global financial crisis. To place these 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% (in Colombia). The median loan growth was 21.6% (in India). The median growth in deposits was 17.9% (in Brazil). 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 the 59 countries, the median loan/deposit ratio is 92.3% (in Greece).
The median loan/asset ratio is 56.0% (in Poland). The median loan/GDP ratio was 63.9% in India. 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 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 more highly 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. Brazil’s is the highest CBBER of any Latin American country surveyed by BMI, although it is not dramatically higher than that of Mexico. Brazil’s CBBER is improved by the large absolute size of its banking sector and the absolute growth that we envisage during the forecast period. Interestingly, Brazil’s country elements are significantly lower than those of Mexico.
Executive Summary
Table: Levels (BRLbn)
Table: Levels (US$bn)
Table: Levels At December 31 2007
Table: Annual Growth Rate Projections, 2007-2012 (%)
Table: Ranking Out Of 59 Countries Reviewed In Q208
Table: Projected Levels (BRLbn)
Table: Projected Levels (US$bn)
Key Issues
Brazil Commercial Banking SWOT
Brazil Political SWOT
Brazil Economic SWOT
Brazil Business Environment SWOT
Changes To The Commercial Banking Report
The Global Financial Crisis – Continued
Table: Selected European Countries: Projected Budget And Current Account, 2008 (as % of GDP)
Commercial Banking Business Environment Rating
Table: Brazil’s Commercial Banking Business Environment Ratings
Table: Latin America’s Commercial Banking Business Environment Ratings
Bank Lending
Lending Overview
Table: Lending Overview, 2006 And 2007 (BRLbn)
Total Assets, Client Loans And Client Deposits
Table: Comparison Of Total Assets, Client Loans And Client Deposits (US$bn)
Per-Capita Deposits
Table: Comparison Of Per Capita Deposits, Late 2007 (US$)
Country Update
Macroeconomic Trends And Developments
Table: Brazil – Macroeconomic Activity, 2005-2013
Political Outlook
Industry Forecast Scenario
Table: Annual Growth Rate Projections, 2007-2012 (%)
Table: Projected Levels (BRLbn
Table: Projected Levels (US$bn)
Comment On Developments Over Last Year
Comment On Forecasts
Comment On Trends and Ratios
Table: Comparison Of Loan/Deposit, Loan/Asset And Loan/GDP Ratios, Late 2007/ Early 2008
Banks’ Bond Portfolios..33
Table: Bond Portfolios, Late 2007
Competitive Landscape And Protagonists
Methodology
Basis Of Projections
Commercial Bank Business Environment Rating
Table: Commercial Banking Business Environment Indicators And Rationale
Table: Weighting Of Indicators
- Brazil
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