Latin Finance - September/October 2010 - 68

Brazil banco do brasil

less sophisticated consumers outside the payroll deducted area, she says. This customer base is untested in terms of ability and willingness to repay. “We have not seen the seasoning of these credit portfolios. There may be a whole new trend of delinquencies in these lower Turbo Drive classes,” she fears. Moreover, BdB’s two recent acquisitions are helping turboAs yet, there are few signs of deterioration at BdB, with drive credit growth. The bank took 50% of the capital of Banco indicators of allowance for loan losses over 90 days decreasing, Votorantim last year, and a joint venture is moving BdB into ending the first quarter at 6.7%, 20 basis point less than in payroll credit for retirees and the auto loans business, Monteiro December 2009. says. São Paulo-based state bank Nossa Caixa, which BdB fully If growth in credit and cheap funding were not already an bought in 2009, will fill out its credit books in Brazil’s richest embarass de richesse, the government bank also benefits from the state. huge, if inefficiently managed, infrastructure growth program São Paulo is not, however, tomorrow’s battleground. Instead PAC, as well as development of pre-salt oil fields. BdB intends it will be the Northeast, says Monteiro. to boost credit to Petrobras and companies that make up the oil “The Northeast is our China in terms of growth,” says the giant’s supply chain, Monteiro says. Hydro power plants, the Rio official. BdB has the best metro, the World Cup branch network in the and the Olympics should Banco do Brazil in Figures region and can capture Steady asset growth also boost BdB’s business. the expansion of the It remains to be Dec 08 Mar 09 Dec 10 Mar 10 middle class without the seen just how much huge investment that the BdB will achieve in Total Assets 521,273 591,925 708,549 724,881 other banks would need these areas. Its scope for Deposits, money market borrowing 361,728 411,189 498,385 500,490 to make, he adds. operations will likely be ROA (%) 2.40 1.20 2.40 1.30 Moreover, that region crimped by the BNDES, is more profitable than which dominates longROE (%) 47.40 23.80 56.80 28.00 the more heavily banked term credit and project Non performing loans/total loans (%) 4.00 4.70 6.80 6.60 and competitive southfinance in Brazil. Source: Banco do Brasil east, where private “BNDES is the driving institutions compete force here today,” says vigorously and margins are under pressure, says Monteiro. “If we Vansetti-Hutchins. have to choose between increasing market share or profits, we Monteiro admits that the development bank has a crucial choose profits. That is why the northeast region is one of the best role in long-term financing for Brazil, which has had historical options that we have,” he says. difficulty in sourcing such funds. He declines to comment on The biggest single risk to credit is an economic downturn, whether the development bank was crowding out other lenders, which would cause delinquencies to spike, but that looks highly though. unlikely for now. Monteiro notes just how fast the recovery has This is a persistent complaint from international and domestic been. In 2009, Brazilian GDP dropped, but only by 0.2%, he private banks, which say they cannot compete on cost or tenor notes. BdB predicts GDP growth of 6.5%-7.0% this year and with BNDES. Brazil will have to strike a balance if it is to raise the 5.0%-6.0% in 2011. 1.6 trillion reias envisaged under the second growth program, “Macroeconomic conditions are very good, unemployment is PAC 2, which is slated to be launched next year. Some of that will going down and salaries are going up,” he says. Unemployment have to come from the private sector. fell to 7% in June, according to data from the Brazilian Institute of Geography and Statistics (IBGE), the lowest level ever Overseas Niche recorded in the series. Overall salary rises are running at a Other areas of the bank’s growth are more controversial. In April, modest clip, however. BdB signed an agreement for the acquisition of a controlling interest in Argentina’s Banco Patagonia and the US Federal Conservative Focus Reserve granted the bank the status of financial holding company According to its CFO, BdB is shielded from economic downturn. the same month. That puts in two pieces of the bank’s overseas It is focused on the most conservative segments of the market expansion plan, involving a focus on serving Brazil’s diaspora and where risk is lowest. This includes payroll deducted loans and its growing cadre of multinational corporations, says Monteiro. car financing, an area the joint venture with Votorantim will help Analysts have mixed reactions. They understand that it makes promote, Monteiro says. sense to provide global services to Brazilian banks and support a Vansetti-Hutchins points out that most banks have been push into certain states of the US, but wonder what the Argentine pursuing market share in these safe products, especially payroll deal gives BdB in an economy that most investors prefer to avoid. deducted loans, and that has been reducing margins. The next “I can see no reason to be in Argentina except political ones,” leg of growth will involve selling credit products to poorer and says Plinio Chapchap, partner at Queluz, and professor of finance debit card range, Elo. The card range will be cheaper as it dispenses with expensive guarantees when travelling abroad and FX transactions, which are unnecessary for many Brazilians, Monteiro notes.

68 LatinFinance

September/October 2010

Latin Finance - September/October 2010

Table of Contents for the Digital Edition of Latin Finance - September/October 2010