Development of Brazil's Banking Industry

The industry in which Banestes operates underwent important structural changes, going from a scenario of high inflation in the 1980s and early 1990s to a scenario of low and controlled inflation and macroeconomic and monetary stability following the implementation in 1994 of the economic stabilization measures known as the Real Plan.

Due to this newfound monetary stability, as of 1994 Banestes experienced continuous growth in the demand for credit in Brazil. This growth in demand, combined with the loss of inflationary gains and increased shares of foreign financial institutions in the domestic market, pressured the banking industry to improve their efficiency ratios and increase revenue from services. As a result, the banking industry began a period of rationalization and consolidation. In turn, the federal government actively monitored these processes through the creation of programs to protect economic welfare, which included measures to assure the solvency of institutions, reduce the equity interests held by state-owned institutions and increase competition among private banks.

From a macroeconomic standpoint, inflation remained stable on a sustained basis, due, among other factors, to local-currency appreciation arising from the continuous recording of trade surpluses and improvement in the external accounts. In recent years, Brazil has achieved the inflation targets established by the federal government, according to the report published by the Central Bank of Brazil.

The strategies and actions of Brazilian banks aim to obtain scale gains, expand client bases and increase the offering of products and services, as reflected by the acquisitions and investments made. In short, to maintain profitability banks must increase business volume and gain productivity.

Brazil still has a low penetration of banking products compared with more developed countries, but this penetration rate has grown substantially over the past few years.

Main Financial Institutions in Brazil's Financial System

Brazil's Financial System

Brazil's Financial System is basically composed of (I) regulatory agencies, such as the National Monetary Council (CMN), the National Private Insurance Council and the Private Pension Management Council; and (II) government agencies, such as the Central Bank of Brazil, the Securities and Exchange Commission of Brazil (CVM), the Private Insurance Superintendence (SUSEP), the Private Pension Secretariat (SPC), all of which, within their operational and jurisdictional scopes, supervise, regulate and oversee financial institutions, securities exchanges, insurers, private-pension administrators and other such companies.

Private Sector

The private sector in Brazil's financial system includes, among other companies, multiple-service, commercial, development and investment banks, consumer credit companies, mortgage lenders and security brokerages and dealers.

Public Sector

In spite of the partial privatization of state-owned banks in the 1990s, federal and state governments still control large commercial banks and financial institutions with the aim of fostering economic growth, particularly in the industrial and agricultural sectors. These institutions hold a significant share of total deposits and assets in Brazil's financial system and a large share of savings accounts, mortgage notes and farm and mortgage lending. In addition, development banks operate as regional development agencies.

The public sector of Brazil's financial system includes: development banks, which operate at the federal (such as the BNDES), state and regional levels; (II) savings banks, which operate at the federal (such as Caixa Econômica Federal) and state levels; and (III) commercial and multiple-service banks and other financial institutions in which the federal government or one or more states directly or indirectly hold a majority interest in the voting capital.