Thriving Through Efficiency
Brazilian banks have performed remarkably well because of their competent management. But the credit market remains vastly undertapped because of the high cost of finance in Brazil.
The Brazilian banking sector has performed remarkably well
in recent years. The question is whether this is due to
efficiency or mere opportunism. Among the principal sectors of
the Brazilian economy during 2002, only five posted returns on
equity in excess of the 18% yield available on bank CDs.
However, these generally low returns in the industrial sector
of the economy probably are less a sympton of inefficiency and
more a consequence of a market in which credit is scarce,
costly and of very short maturity.
In fact, the operating profits of most Brazilian
non-financial companies are in line with similar companies
operating in other countries. However, the problem lies with
the heavy financial costs that Brazilian companies must bear -
costs that consume about one-third of companies' revenues. The
economy cannot grow at a sustainable rate of 4% a year or more
as long as companies must finance them-...
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