The small and medium-sized banks of Brazil have faced a series of challenges in recent years, from fraud scandals to adapting to international accounting standards. In light of this, the country's government has attempted to offer some sort of salvation in the shape of its Special Guaranteed Time Deposits, but is this a short-term solution to a long-term problem?
The executives of Brazil's small and medium-sized banks have been looking on with anguish as tortuous negotiations to rescue Banco Cruzeiro do Sul, which is under central bank administration, are concluded. The deadline for finding a buyer for the family-owned bank was set to expire as The Bankerwent to press, with harassed bondholders still searching for a solution.
Some industry-watchers are pondering just how deep-rooted the problems in Brazil's banking sector are. Central bank investigations into fraud at Cruzeiro do Sul, as well as Banco PanAmericano and the smaller Schahin and Morada banks, have caused the widespread withdrawal of foreign bond investor trusts, which is shutting off the already tight funding markets. Tougher competition in niche markets in Brazil’s rapidly maturing credit markets is emerging and government pressure to bring down rates has seen state-owned banks cutting spreads. All of this comes amid a weaker macroeconomic situation in Brazil, which is expected to grow by just 1.75% this year.
This is the start of an article that looks at the funding crisis facing smaller Brazilian banks. To see the full article, please go to The Banker website (www.thebanker.com).