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Jun 2011

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Retail lending in Brazil

The Brazilian banking sector is experiencing unique times. For the first time since achieving monetary stability in 1994, the sector has managed to embark upon a continuous upward trend in the credit market, which has been growing strongly and steadily in recent years at rates of around 20%, even though the market is extremely competitive. However, the sectors exponential progress and its access to people who are using their first credit card have raised some concerns, particularly abroad, regarding the strength of the market and the possibility of a bubble in the medium term. The major players in the local market emphatically deny that Brazil is running any of these risks and the government has been quick to address any uncertainty with tough containment measures, already signaling a slowdown in credit in the second half of the year. The debate is important because this is a huge market with practically untapped areas of credit that are being conquered by the banks, such as mortgage loans or the 20 million Brazilians that have moved up from the D and E economic classes to class C, and are now firmly in the sights of a competitive credit card market. This BNamericas report analyzes to what extent Brazils major banks are participating in this promising sector and the perspectives for growth, as well as the measures taken by the Brazilian government to keep indebtedness in check, among other relevant issues.

this month s series :

The momentum is strong Brazilian credit has risen steeply from a low of 21.8% of GDP in 2003, the lowest level since the start of the new millenium, to 46.6% of GDP in April 2011, eight years later. The governments active role In December, Brazils central bank announced an increase in banks reserve requirements, and there have been three hikes in the base interest rate, the Selic, so far this year. In March, the government raised the tax rate on financial operations (IOF by its acronym in Portuguese) for loans to companies and banks in the international market. Loans to individuals The main race between Brazilian banks is in mortgage loans, where the level of debt delinquency is considered low, there are good margins and risk is low. Meanwhile, when it comes to consumer loans which are much more developed, there has been an increase in debt delinquency which raises some concern due to the level of indebtedness among Brazilian families.

Leading banks: market share in credit market (2010)

HSBC - 3% Safra - 2%

Others - 19%


Santander - 10% Bradesco - 14%

Ita Unibanco - 16%

Caixa Econmica Federal - 12% Source: Febraban

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Written and researched by Vernica Goyzueta

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Director Ral Ferro Executive editor Henriette Iraabal Carmen Oria Analysts Financial Services: Mara Alejandra Moreno Mining: Laura Superaneau Telecom: Phil Anderson Oil & Gas: Pietro Donatello Pitts Stats & Data Analyst: Mara Jos Arredondo Economist: Gonzalo Vergara Research department Manager: Karin Naeter Researchers Alejandro Elgueta Daniel Cabrera Francisca Monsalve Nicole Valdebenito Rodrigo Ibaez David Cornejo Costanza Cristino

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Editor Ulric Rindebro Santiago, Chile Juan Andrs Abarca Jorge Porter Account Manager Financial Services Simon Court Translated into English by Robin Brundell Designed by Paulo Veloso

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