OPERATIONAL RISK & REGULATION: Fraud and economic pressure are problems for Brazil’s small banks

Seven bank interventions, including major cases of fraud, have rocked Brazil’s small- and medium-sized bank sector. Investors are calling into question everything from their business model and costs of funding through to corporate governance standards, the efficacy of their accountants and Central Bank oversight. Can the sector survive?

Another fine mess

The Central Bank has found itself forced to intervene in Brazil’s small- and mid-sized banking sector time and time again since 2008. Each case has been different and in some cases the banks are admittedly tiny. The seven banks in which the Central Bank has intervened represent less than 1% of total assets in Brazil’s banking system. Oboé Crédito, Financiamento e Investimento in Fortaleza, whose assets the Central Bank liquidated in February, had assets of just R$409.6m.Moreover, fraud is notoriously hard to spot and much of the blame lies with accountants, agree analysts.

Even so, foreign investors have been put off the sector and a couple of cases are particularly worrying. The two most substantial frauds were uncovered in the cases of Banco PanAmericano in 2010 and Banco Cruzeiro do Sul earlier this year. “There is no confidence at all in these banks. This sector is kind of a black hole,” says Antonio Mazzuco, partner at São Paulo-based law firm Madrona Hong Mazzuco Brandão.

This is the start of an article on problems facing Brazil's smaller banks. To read the rest of the article, please go to www.risk.net.

About admin

I've been researching and writing on Brazilian financial markets, industry and economy since 2006 for a wide range of specialist media, consultancies and investors. Before that I spent over 10 years in London and New York writing for and editing magazines and journals dedicated to finance, investment and economics in developing markets, mostly for the Euromoney Institutional Investor group and Thomson Financial. Areas of coverage Below are samples of areas that I cover and some of the common themes that I investigate. Capital markets BM&FBovespa markets *capital raising trends: via equities (IPOs and secondary issuance), debt and loans *the asset management industry: legislation and coverage of the key hedge, pension and investment funds * corporate governance: how the regulator is seeking to strengthen best practice and limitations * debt markets: the nascent corporate markets, attempts to boost liquidity and new insturments. * private equity market: why this market has been so successful, who’s involved. *electronic, high frequency trading and alternative trading platforms: what does the future hold? Banking *credit: the growth of consumer and business credit and competition between banks and models *Public versus private: the role and market share of public and private sector banks and the politicization of the industry * internationalization: which Brazilian banks are expanding overseas and where * investment banking: the growth of the domestic market and who’s winning which mandates *regional banks and development banks: what role they play in the industry and how they compete Mining *licensing: the complex process of obtaining environmental, water, land and operating licenses at a state and federal level. * capacity: the feasibility and sustainability of capacity increases * financing: how miners are raising finance in Brazil and abroad *competition: the interplay Vale, MMX and junior miners *logistics: rail, road and port connections Oil and gas: the fund raising issues related to the massive of pre-salt (link) Multilatinas: Who are they and how and where they are expanding Meatpacking: Are debt burdens sustainable, what are the different business models for areas such as branding and distrbution Agriculture: How are farms consolidating, what are environmental risks, how can foreign investors be involved. IT and software: Can Brazil take on India and build a viable long-term IT industry? For more information on clients and work, please see the media and consultancy sections.
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