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BRAZILIAN BANKING: End of the golden age

Jul 1, 2012

The outlook for Brazilian banks and their shareholders has darkened. Crude government measures to stimulate credit look dangerous while the consumer story is starting to unravel

By John Rumsey

The cosseted Brazilian banking sector is facing unprecedented challenges. A government push to lower interest rates and moves to encourage public sector banks to lend more as part of a drive to squeeze spreads is coming on top of much higher delinquency rates.

Average 90-day non-payment levels across businesses and individuals hit 6% in May, the highest level since the series began in 2000, according to central bank data. Individual credit defaults reached 7.98%, the highest level since November 2009 when it reached 8%.

Private banks would like to draw in their horns on credit, but are afraid of losing market share. The government has already enacted a bold series of measures - which are proving worrisome to bankers - to stimulate credit as GDP numbers remain weak.

According to the central bank's latest poll of leading economists, Brazil's economy will grow by just 2.01% this year, a...

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“The crisis has been a setback for reserve diversification."

Jan Dehn, Ashmore Investment Management