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Market Environment Analysis and Overview of Brazil
Part One
Foreign Trade
While the banking industry, like most others, is better
off since the Real Plan went into effect than before, the
short-term benefits are not as great. This is because
banks tend to do better in periods of high inflation than
they do under stable economy. For banks, high inflation
generated income from "float" and also large spreads on
money market operations.
Banks became averse to lending during high inflation,
especially as the better commercial risks moved to
reduce leverage and stopped borrowing. Stabilization has brought considerable
down-sizing, and banks resumed lending as one way to develop new income sources.
Payment gateways are finding alternatives to income generated from float, including
higher interest rates, higher volumes, and service charges. Some problems still occur
as more than 70% of the Brazilians don't have a bank account - a remain from high
inflation days when saving wasn't profitable. Another remain of the old days is the
fact, that the main competitors for the banks are the stores, giving credit to the
consumer with lower interest rates.
Classification of financial Institutions by Activity
The state or interstate development banks are regional financial institutions controlled
by respective state governments, which grant medium or long term loans for fixed or
working capital, according to the economic and social needs of the region of which
they operate. The principal and activities of these entities are the on lending of loans
and providing of loans for the financing of rural and industrial development schemes.
Federal and state saving banks are financial institutions which undertake almost the
same types as the commercial banks. They accept savings from individuals, by means
of deposit in current accounts, and make loans.
Commercial banks - They engage in both wholesale and retail banking and are the
main source of short- and medium-term loans. In addition to making loans, they
provide other financial services, such as accepting deposits, paying checks, issuing
letters of credit, dealing in foreign exchange, cash management services, investment
banking services and investment management.
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Investments banks- They specialize in medium- and long-term loans finance for the
supply of capital and the investment of third party funds.
Credit, finance and investments companies - They specialize in credit opening
operations by acceptance of bills of exchange to finance purchases of goods and
services by consumers or by final users. They include subsidiaries of large
manufacturing or retail companies. Financiers charge higher rates than commercial
banks.
Securities dealership and brokers - They function as the securities dealers of the
Brazilian financial conglomerates. Through the distribuidora, the other financial
institutions in the group sell their financial paper to the market.
International Banks
The participation in Brazil's banking sector is presently frozen at levels set 40 years
ago, but there is a tendency to liberalize the possibilities of foreign participation.
Several foreign banks hold minority ownership positions in local banks. A few foreign
banks also have local subsidiaries or branches. As examples Credit Commercial
France-Brazil, ABN Amor Bank, Bank of Boston and Citibank have subsidiaries in
Brazil.
In addition many foreign banks have chosen to have representative offices, in the
main business areas. For example Merit Bank has a representative office in Sã Paulo.
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Representative offices can make foreign currency loans to Brazilian banks but
according to Brazilian law they cannot pursue any banking activities other than
putting potential Brazilian borrowers in touch with the foreign parent bank and act as
a local representative.
Financing Projects
In order to obtain financing for projects, guarantees are needed because the cash flow
usually isn't sufficient and additional guarantees are needed to hedge the country risk.
Some possible sources of financing may include the following.
Commercial Banks
Finnish commercial banks as well as foreign banks offer for example services
including Letter of credit confirmations, bank to bank guarantees, and other short- and
medium-term trade finance services with a select number of Brazilian banks.
On March 26 1997 the Central Bank of Brazil imposed provisions on import,
regulating that only risks with maturities of a minimum 361 days or clear cash on
delivery financing is approved when importing to Brazil. These provisions can,
however, be seen as a considerable trade barrier, and thus not consistent with the
GATT rules.
Finnish Export Credit
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Finnish Export Credit had loans to Central and Latin America of up to USD 50
million in 1996. The financing was mainly focused on Brazil, Chile and Mexico.
Because of the positive development of these countries new projects are going to be
launched especially in the area of telecommunication, wood industry and energy.
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