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Composition of the Brazilian Financial System – BFS (as % of total assets)

Banco Central do Brasil The Role of International Financial Conglomerates in Emerging Markets June /2005. Composition of the Brazilian Financial System – BFS (as % of total assets). Composition of the Brazilian Financial System - BFS.

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Composition of the Brazilian Financial System – BFS (as % of total assets)

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  1. Banco Central do Brasil The Role of International Financial Conglomerates in Emerging MarketsJune/2005

  2. Composition of the Brazilian Financial System – BFS (as % of total assets)

  3. Composition of the Brazilian Financial System - BFS • Overall reduction in the number of banks point to more concentration in the BFS • Private banks (domestic and foreign) occupy the space left by the reduction in the number of government-owned institutions, as a result of privatization • Foreign banks grab a greater share of the market in 2001, only to lose it to domestic banks in 2004

  4. Capital adequacy

  5. Capital adequacy • Private banks maintain their Basel capital ratio at good levels (above 15%), well above the required capital of 11% • No difference: Domestic X Foreign • Government banks show considerable improvement in theirs (doubling from 8 to 16% in the period)

  6. Evolution of Intermediation

  7. Evolution of Intermediation • Considerable reduction in the loan portfolio of government banks (portfolio restructured ) and good increase in the loan portfolio of private domestic banks • Foreign banks also increased their credit portfolios, albeit less than domestic banks

  8. Efficiency * ratio between administrative outlays (including staff-related costs) and the sum of the net income of financial intermediation and fees

  9. Efficiency • While government banks find difficulty in improving their efficiency, domestic private banks gradually improve theirs and foreign banks, inversely, see their efficiency deteriorating • The administrative expenses of both private domestic and foreign banks increased in the period but, in the case of the former, this was more than compensated by a comparatively higher increase in revenues

  10. Earnings

  11. Earnings • After a bad year in 2000, foreign banks recovered; the slight reduction in profitability from 2001 to 2004 being basically due to the appreciation of the Brazilian currency (Real) • Remaining government institutions were restructured and significantly improved their earnings performance • Domestic private banks confirm their good phase with a leap in profits from 2001 to 2004 (originating from higher earnings in both financial intermediation and services)

  12. Some thoughts • No performance differences among domestic private and international financial conglomerates; • No financial innovation; • Support from home-supervisor • Lower concerns with capital adequacy; • International conglomerates interest tend to be unstable: • Market share depends on economic and political stability; • Strategic presence for market survey; • Strategy of speculative positions to arbitrage domestic gaps and fragilities; • Domestic private and government long term committed (no options).

  13. Contact BANCO CENTRAL DO BRASIL Directorate of Supervision E-mail: secre.difis@bcb.gov.br Phone: 55-61-414-2442 Fax: 55-61-321-4280

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