Brazilian banks have enjoyed double-digit base rates for much of the past 20 years. The couple of times rates have dipped into single figures for a year or so they have rebounded quickly.
However, this time that spread isn’t expected to rebound. On the contrary, the markets are pricing in further falls with a lurch down to a new all-time record floor of around 5.5%.
Worse: competition is also finally picking up. The Brazilian Central Bank had allowed the banking sector to consolidate to an incredible degree. With the acquisition of Citi by Itaú and HSBC by Bradesco the top five banks (excluding development banks) held 84% of total loans. In retail branch banking, the top five banks held 90% of branches, up from 71% in 2007.
However, the regulator appears to realise that consolidation has created an oligopolistic market structure and decided in August 2018 to prevent Itaú from taking a majority of the voting shares of online stockbroker XP Holding Investimentos. Roberto Setubal, chairman of Itaú, told Euromoney in February this year that the central bank has actually gone further and said: ‘That’s it, you can’t buy anything important, you are already too big in Brazil.’
