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.