Brazil
Economic and
Financial Sector Overview
August 2011
Index
• General Overview – Demographics,
Macroeconomic Policy and Social Development
• Recent Economic Indicators
• The National Financial System
• Prudential Regulation and Supervision
• Access to Banking Services
• Competition in the Banking Sector
2
General Overview
Demographics
Macroeconomic Policy
Social Development
3
General Overview
Brazil Demographics
• Brazil is among the largest countries in
terms of territory, population and GDP.
• Brazil has vast natural resources,
including recently discovered large
offshore oil fields, a diverse industrial
base, a dynamic and sophisticated
private sector, and a well-structured
public sector.
• Brazil is a vigorous democracy, with free
multiparty elections and a stable political
system.
• Brazil has good relations with all its
neighbors and has increased its ties with
all regions of the world.
• 7th largest GDP: US$ 2,090 billion (2010).
• Continental country: 5th largest area
8,514,877 km2.
• 5th largest
people.
Sources: IBGE / IMF/WEO estimates
population:
191
million
4
General Overview
Demographics
Pyramid
•Population
Sources:
IBGE(2010)
/ UN
100+
90-94
80-84
70-74
60-64
50-54
40-44
30-34
20-24
10-14
0-4
Dependency Ratio
100
men
women
75
50
Brazil
• Brazil’s population is highly concentrated
within
the
Economically
Population range.
Active
China
India
2050
2040
2030
2020
2010
2000
million of people
1990
10
1980
5
1970
0
1960
-5
1950
25
-10
Russia
• Brazil’s
dependency ratio is still
declining, while other countries already
face an upward trend.
Note: The dependency ratio is the ratio of the sum of the population
aged 0-14 and that aged 65+ to the population aged 15-64.
Sources: IBGE / UN
5
General Overview
Macroeconomic Policy
• Main features of the macroeconomic policy framework:
- Inflation targeting
- Fiscal responsibility
- Exchange rate flexibility
• The macroeconomic fundamentals, combined with
adequate prudential policy and strong bank supervision
resulted in:
- Capacity to absorb internal and external shocks
- Macroeconomic and financial stability
- Sustainable growth
- Credit and capital market development
- Investment growth
6
General Overview
GDP Real Growth
8
7.5
5.9
6
6.1
5.7
5.2
4.9
4.3
4.2
4
4.0
3.4
2.7
4.0
3.2
2.2
2
1.0
%
1.3
1.1
0.0 0.3
0
-0.5
-0.6
-2
-4
-4.4
2011*
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
-6
*Forecast from Central Bank of Brazil (Inflation Report – June 2011)
Source: IBGE
7
General Overview
GDP
2,500
US$ 2,335
US$ billion
2,000
1,500
1,000
500
2011*
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0
*Forecast from Central Bank of Brazil (Inflation Report – June 2011)
Source: IBGE
8
General Overview
GDP per Capita
US$ 11,978
12,000
10,000
US$
8,000
6,000
4,000
2,000
2011*
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0
*Forecast from Central Bank of Brazil (Inflation Report – June 2011)
Source: IBGE
9
Source: IBGE
Jan 11
Jan 10
Jan 09
Jan 08
Jan 07
Jan 06
Jan 05
Jan 04
Jan 03
% (seasonally adjusted)
General Overview
Unemployment Rate
14
13
12
11
10
9
8
7
Jun 11
6.1%
6
5
10
Source: IBGE
2011
10
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
% in 12 months
General Overview
Consumer Price Index (IPCA)
25
20
15
Jul 11
6.87%
5
0
11
General Overview
Consumer Price Index (IPCA) - Breakdown
9
8
% in 12 months
7
6
5
4
3
2
1
Tradables
Source: IBGE
Non-tradables
Jul 11
Jan 11
Jul 10
Jan 10
Jul 09
Jan 09
Jul 08
Jan 08
Jul 07
Jan 07
0
Services
12
General Overview
Consumer Price Index (IPCA)
16
14
% in 12 months
12
10
8
6
4
2
IPCA ex-Food and Beverage
Jun 11
Dec 10
Jun 10
Dec 09
Jun 09
Dec 08
Jun 08
Dec 07
Jun 07
0
IPCA Food and Beverage
data until July 2011
Source: IBGE
13
General Overview
Consumer Price Index (IPCA)
change yoy (%)
2004
2005
2006
2007
2008
2009
2010
2011*
7.6
5.7
3.1
4.5
5.9
4.3
5.9
6.9
Food and beverage
3.9
2.0
1.2
10.8
11.1
3.2
10.4
9.4
Housing
7.1
6.4
3.1
1.8
5.1
5.7
5.0
6.3
Household equipment
5.4
2.7
-2.7
-2.5
2.0
3.1
3.5
1.3
Apparel
10.0
7.1
5.1
3.8
7.3
6.1
7.5
8.8
Transportation
11.0
8.1
3.0
2.1
2.3
2.4
2.4
5.7
Health and personal care
6.9
6.2
6.0
4.5
5.7
5.4
5.1
5.9
Personal expenses
6.9
7.0
7.3
6.5
7.4
8.0
7.4
8.3
Education
10.4
7.2
6.2
4.2
4.6
6.1
6.2
8.3
Communication
13.9
6.4
-0.2
0.7
1.8
1.1
0.9
1.8
Tradables
6.3
2.7
1.3
4.7
7.0
2.6
6.9
6.4
Nontradables
6.9
6.4
4.0
6.6
7.1
5.5
7.3
8.2
10.2
9.0
4.3
1.7
3.3
4.7
3.1
5.7
6.7
6.8
5.5
5.2
6.4
6.4
7.6
8.8
Consumer Price Index (IPCA)
Regulated
Services
*July 2011 (12months)
Source: IBGE
14
General Overview
Inflation – Convergence to Targets
10
market
expectation
8
%, yoy
6
4
2
target (4.5%)
Jan 13
Jan 12
Jan 11
Jan 10
Jan 09
Jan 08
Jan 07
Jan 06
Jan 05
Jan 04
0
market expectation: August 12th
Sources: BCB / IBGE
15
General Overview
Inflation Targeting Regime
CPI (%YoY), interest rate (% p.a.)
30
25
20
15
10
5
Monetary policy interest rate
Sources: BCB / IBGE
Mar 11
Mar 10
Mar 09
Mar 08
Mar 07
Mar 06
Mar 05
Mar 04
Mar 03
Mar 02
Mar 01
Mar 00
0
CPI
16
General Overview
Commodity Price Index
220
200
Jul 11/ Jun 11
-5.9%
Dec 05 = 100
180
160
Jul 11/ Jun
11
-3.3%
140
120
100
80
IC-Br
Jun 11
Dec 10
Jun 10
Dec 09
Jun 09
Dec 08
Jun 08
Dec 07
Jun 07
Dec 06
Jun 06
Dec 05
60
IC-Br agriculture
IC-Br: Brazilian Commodity Price Index in Brazilian Currency
Source: BCB
17
General Overview
Real Interest Rate
25
20
%
15
10
5
Aug 12
6.2%
Jan 11
Jan 10
Jan 09
Jan 08
Jan 07
Jan 06
Jan 05
Jan 04
Jan 03
Jan 02
0
Market Rate 360 days and IPCA expected 12 months (Focus)
Sources: BM&FBovespa / BCB
18
General Overview
Net Public Debt
70
60.4
60
54.8
% of GDP
52.0
50.6
50
48.4
47.3
45.5
42.8
40.2
38.5
40
39.7
30
2011*
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
20
*June 2011
Source: BCB
19
General Overview
Federal Securities - Breakdown
Composition of total federal security debt (%)*
2004
2005
2006
2007
2008
2009
2010
2011**
Fixed rate
20.1
27.9
36.1
37.3
32.2
33.7
37.9
39.1
Price linked
14.9
15.5
22.5
26.3
29.3
28.6
28.1
28.1
Selic linked
57.1
51.8
37.8
33.4
35.8
35.8
32.5
32.4
Exchange rate
5.2
2.7
1.3
0.9
1.1
0.7
0.6
-0.4
Other
2.7
2.1
2.2
2.1
1.6
1.2
0.8
0.8
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Total
**Jun 2011
* Do not include securities held by the Central Bank.
Source: BCB
20
General Overview
Trade Balance – Exports and Imports
250
236
202
198
200
182
173
US$ billion
161
150
153
138
96
100
91
74
73
55 56
58
56
50
128
121
118
209
63
60
47
48
Exports
Source: MDIC
Imports
2011*
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0
*July 2011 (12 months)
21
General Overview
Trade Balance
50
44.7
46.5
40.0
40
33.6
US$ billion
30
24.8
24.8
27.1
25.3
20.3
20
13.1
10
2.7
0
-0.7
2011*
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
-10
*July 2011 (12 months)
Source: MDIC
22
General Overview
Exports in 2010
Composition
Semimanufactured
goods
14.0%
Destination
US
9.6%
Others
17.4%
Basic goods
44.6%
EU (exGermany)
17.3%
Argentina
9.2%
Germany
4.0%
Manufactured
goods
41.5%
Latin America
and the
Caribbean
(exArgentina)
14.6%
China
15.2%
Asia (ex-ME
and China)
12.6%
* excluded Argentina
** excluded China and Middle East
*** excluded Germany
Source: MDIC
23
General Overview
Current Account
20
14.013.6
11.7
10
-0.2
US$ billion
-10
-6.8
4.2
1.6
1.0
0.1
0
-20
6.1
4.2
-1.4
-5.3
-1.4
-3.8
-0.7-1.8
-7.6
-11.7
-16.3
-18.4
-23.2
-24.2
-25.3
-23.5
-30
-24.3
-28.2
-30.5
-33.4
-40
-50
-47.4
-60
-60.0
2011*
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
-70
*June 2011 (12 months)
Source: BCB
24
General Overview
Current Account
3
2
1.6
1.3
0.8
1
0.3
0.1
0
0.1
-0.1
-0.5
-1
-0.4
-0.2 -0.3
-0.8
-1.5
-2
-1.7 -1.6
-2.1
-2.8
-4
-3.5
-3.6
-4.5
-6
-2.5
-3.8
-4.0
-4.3
-4.2
2001
-5
-2.3
-2.4
-3
1999
% of GDP
1.8
1.6
1.4
-6.0
2011*
2009
2007
2005
2003
1997
1995
1993
1991
1989
1987
1985
1983
1981
-7
*June 2011 (12 months)
Source: BCB
25
General Overview
FX Inflows
100
US$ billion (12 months)
80
60
40
20
0
-20
-40
-60
trade in goods and services
financial
Jul 11
Jan 11
Jul 10
Jan 10
Jul 09
Jan 09
Jul 08
Jan 08
Jul 07
Jan 07
Jul 06
Jan 06
-80
total
Up to July 29th
Source: BCB
26
General Overview
Foreign Direct Investment
70
68.8
60
48.4
45.1
40
34.6
32.8
28.928.6
30
25.9
22.5
19.0
20
16.6
10.8
10.1
2011*
2009
2007
2005
2001
1999
4.4
1997
1993
1.1 1.0 1.1 2.1 1.3 2.1
1991
2.8
1989
1985
1983
1981
0
0.3 1.2
1987
2.5 3.1 1.3 1.5 1.4
1995
10
18.1 18.8
15.1
2003
US$ billion
50
*June 2011 (12 months)
Source: BCB
27
General Overview
Foreign Direct Investment / GDP
6
5.1
4.9
5
4.1
% GDP
4
3.4
3.3
3.2
3
2.7
2.5
2.7
2.3
2.2
1.8
2
0.9
0.7 0.8 0.7
0.4
0.1
0.5
0.3 0.2 0.3
0.3 0.4
1993
1.0
1.6
1.3
1.1
1989
1
1.7 1.7
0.6
2011*
2009
2007
2005
2003
2001
1999
1997
1995
1991
1987
1985
1983
1981
0
*June 2011 (12 months)
Source: BCB
28
General Overview
FDI (-) Current Account Deficit
5
4.5
4
3.3
3.0
3
2.6
2.6
2.1
1.8
% GDP
2
1.3
1.0
1
0.9
0.6
0.1 0.1
0.1 0.1
0
-0.1
-1
-0.1
-0.5
-0.6
-1.5
-2
-1.3
-1.8
2011*
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
-3
*June 2011 (12 months)
Source: BCB
29
General Overview
External Liability – Debt vs Equity
% of total external liability
80
70
60
50
40
30
20
10
Debt
2011*
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
0
Equity
*June 2011
Source: BCB
30
General Overview
External Liability – Interest vs Profits
40
35
US$ billion
30
25
20
15
10
5
Profit remittances
2011*
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0
Interest payments
*June 2011 (12 months)
Source: BCB
31
General Overview
interventions (LHS)
Source: BCB
exchange rate (RHS)
R$/US$
Jul 11
Jan 11
Jul 10
0.5
Jan 10
-15
Jul 09
1.0
Jan 09
-10
Jul 08
1.5
Jan 08
-5
Jul 07
2.0
Jan 07
0
Jul 06
2.5
Jan 06
5
Jul 05
3.0
Jan 05
10
Jul 04
3.5
Jan 04
15
Jul 03
4.0
Jan 03
20
Jul 02
US$ billion
Interventions and Exchange Rate
up to August 5th
32
General Overview
International Reserves
400
351
350
289
US$ billion
300
239
250
194
180
200
150
100
86
4
5 12 12 7
7
1987
8
1983
50
9 10 10 9
24
32 39
52
60
52
45 36 33 36 38
49 53 54
2011*
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1985
1981
0
*August 11th
Source: BCB
33
General Overview
International Reserves
16
14
14.9
14.9
13.8
13.2
11.7
12
% GDP
10
8
6
4
2
2011*
2010
2009
2008
2007
0
*June 2011
Source: BCB
34
General Overview
International Reserves (% GDP)*
119.4
Hong Kong
Singapore
101.3
Thailand
54.0
China
48.4
Hungary
35.0
Israel
33.3
Russia
32.7
Korea
29.0
Denmark
24.4
Japan
20.1
India
17.5
Brazil
13.8
Chile
13.7
Mexico
10.9
*December 2010
Sources: IMF / Thomson Datastream
35
General Overview
Net External Debt
250
190190
200
182
163 165
US$ billion
150
151
136
131
100
79
87 88 92
103 106
96 97
105 108 100 99
88 92
101
101
75
64
50
0
-12
-28
-50
-62
-51
-71
2011*
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
-100
*Estimate June 2011
Source: BCB
36
General Overview
External Debt Ratios
140
120
120.6%
100
%
80
63.4%
60
42.4%
40
21.9%
19.3%
20
12.7%
0
Short term dbt/Intl.
reserves
Debt services/Exports
Dec 03
Source: BCB
External debt/GDP
Estimate Jun 11
37
General Overview
Sovereign Risk (CDS)
4000
3500
S&P:
Fitch:
Moody´s:
basis points
3000
2500
BBB- ( )
BBB
Baa2 ( )
2000
1500
1000
July 2011
113 b.p.
(average)
500
Source: Bloomberg
Jan 11
Jan 10
Jan 09
Jan 08
Jan 07
Jan 06
Jan 05
Jan 04
Jan 03
Jan 02
0
38
General Overview
Main Economic Indicators
2004
2005
2006
2007
2008
2009
2010
2011
663,8
882,4
1.088,8
1.366,5
1.650,7
1.598,4
2.089,8
2.334,8 /1
3.665,2
4.812,0
5.867,3
7.282,7
8.705,7
8.347,6
10.814,0
11.977,7 /1
Real GDP (growth rate)
5,7
3,2
4,0
6,1
5,2
(0,6)
7,5
4,0 /1
Price consumption
3,8
4,5
5,2
6,1
5,7
4,2
7,0
4,1 /1
Gross fixed capital formation
9,1
3,6
9,8
13,9
13,6
(10,3)
21,9
6,4 /1
11,5
9,9
10,0
9,3
7,9
8,1
6,7
6,3 /2
Real payroll (growth rate)
1,6
4,2
5,9
5,8
6,9
3,9
7,4
7,8 /3
Industrial production (growth rate)
8,3
3,1
2,8
6,0
3,1
(7,4)
10,5
3,6 /3
7,6
5,7
3,1
4,5
5,9
4,3
5,9
6,9 /4
3,7
3,8
3,2
3,3
3,4
2,0
2,8
3,3 /3
50,6
48,4
47,3
45,5
38,5
42,8
40,2
39,7 /5
Exports (USD bn)
96,7
118,5
137,8
160,6
197,9
153,0
201,9
250,0 /1
Imports (USD bn)
(62,8)
(73,6)
(91,4)
(120,6)
(173,0)
(127,7)
(181,6)
(230,0) /1
Current account (USD bn)
11,7
14,0
13,6
1,6
(28,2)
(24,3)
(47,4)
(60,0) /1
Current account (%GDP)
1,8
1,6
1,3
0,1
(1,7)
(1,5)
(2,3)
(2,6) /1
Foreign direct investment (USD bn)
18,1
15,1
18,8
34,6
45,1
25,9
48,4
55,0 /1
Foreign direct investment (%GDP)
2,7
1,7
1,8
2,5
2,8
1,6
2,3
2,4 /1
52,9
53,8
85,8
180,3
193,8
238,5
288,6
351,0 /6
Gross Domestic Product
GDP (USD bn)
GDP (USD per capita)
Economic Activity
Unemployment rate (year average)
Consumer price index (% yoy)
Fiscal (consolidated public sector, %GDP)
Primary balance
Public sector net debt
Balance of payments
International reserves (USD bn)
/1 Central Bank forecast
/2 Average Jan-Jun
/3 12 months until Jun
/4 12 months until July
/5 In Jun
/6 On Aug 11th
39
General Overview
Credit / GDP
50
46.4
47.2
44.4
45
40.5
40
35.2
35
30
25.8
26
2002
28.3
2001
% GDP
30.9
25
24.6
25.7
20
15
10
5
2011*
2010
2009
2008
2007
2006
2005
2004
2003
0
*June 2011
Source: BCB
40
General Overview
Total Credit
50
% GDP
40
30
20
10
Individuals
Jan 11
Jan 10
Jan 09
Jan 08
Jan 07
Jan 06
Jan 05
Jan 04
Jan 03
Jan 02
Jan 01
0
Corporations
data until June 2011
Source: BCB
41
General Overview
Household Indebtedness
45
% monthly income
40
35
30
25
20
Debt
Source: BCB
Jan 11
Jul 10
Jan 10
Jul 09
Jan 09
Jul 08
Jan 08
Jul 07
Jan 07
Jul 06
15
Debt service
42
General Overview
Credit – Earmarked and Nonearmarked
June 2011
Individuals
Corporations
29.3%
39.3%
60.7%
70.7%
Earmarked
Source: BCB
Nonearmarked
Earmarked
Nonearmarked
43
General Overview
Earmarked / Total Credit
42.4
37.5
36.3
34.3
35
% of total credit
38.9
33.5
34.6
30
34.7
32.5
32.0
29.4
29.0
2008
40
2007
45
25
20
15
10
5
2011*
2010
2009
2006
2005
2004
2003
2002
2001
2000
0
*June 2011
Source: BCB
44
General Overview
Capital Market – Primary Issues
250
R$ billion
200
150
100
50
Others
Debentures
2011*
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0
Stocks
*June 2011 (12 months)
Source: CVM
45
General Overview
GDP and Investment
Fixed Capital Investment
25
21.8
forecast*
20
13.9
% real growth
15
9.8
9.1
10
3.6
5.7
5
3.2
2.7
13.6
6.1
4.0
6.4
7.5
5.2
4.0
1.2
0
-0.6
-5
-5.2
-4.6
-10
-10.3
GDP
2011*
2010
2009
2008
2007
2006
2005
2004
2003
2002
-15
Investment
*Forecast from Central Bank of Brazil (Inflation Report – June 2011)
Sources: IBGE / BCB
46
General Overview
Fixed Capital Investment
20
4Q 08
19.1
19
4Q 10
18.4
1Q 11
18.5
% GDP
18
4Q 07
17.4
17
4Q 06
16.4
4Q 041
16.1
16
4Q 03
15.3
4Q 09
16.9
4Q 05
15.9
15
Source: IBGE
1Q 11
3Q 10
1Q 10
3Q 09
1Q 09
3Q 08
1Q 08
3Q 07
1Q 07
3Q 06
1Q 06
3Q 05
1Q 05
3Q 04
1Q 04
3Q 03
1Q 03
3Q 02
1Q 02
14
47
General Overview
Investment Prospects - Industry
R$ billion
Av. Annual
2006-2009
2011-2014
Growth %
205
378
13.0
Mining
60
62
0.9
Steel
28
33
3.2
Petrochemical
22
40
12.3
Automobile
25
33
5.6
Electric/Electronics
20
29
8.2
Pulp and paper
18
28
8.7
9
12
6.8
387
614
9.7
Oil and gas
Textile
Total
Feb 2011
Source: BNDES
48
General Overview
Investment Prospects - Infrastructure
R$ billion
Av. Annual
2006-2009
2011-2014
Growth %
104
139
6.0
Telecommunication
62
72
2.8
Sanitation
26
41
9.4
Logistics
55
129
18.6
Railways
20
60
24.7
Highways
30
51
11.4
5
18
26.6
247
380
9.0
Electricity
Ports
Total
Feb 2011
Source: BNDES
49
General Overview
Brazilian Oil Reserves
crude oil, NGL and natural gas
billion – barrel oil equivalent (BOE)
45
40
Libra* (8 billion boe)
35
30
Franco* (4.5 billion boe)
deepwater offshore fields
(pre-salt layer)
*estimated volume
25
Guara* (2 billion boe)
Iara* (4 billion boe)
20
Tupi and Iracema*
(8 billion boe)
15
10
5
Source: Petrobras
future*
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
0
50
General Overview
Social Development
• Both macroeconomic and inclusion
policies have led to marked improvement
in living conditions.
• A significant share of low income groups
joined the middle class.
51
1981
1983
1984
1985
1986
1987
1988
1989
1990
1992
1993
1995
1996
1997
1998
1999
2001
2002
2003
2004
2005
2006
2007
2008
2009
General Overview
Gini Coefficient
0.66
0.64
0.63
0.62
0.60
0.60
0.58
0.56
0.54
0.52
0.52
0.50
Source: IBGE
52
General Overview
Social Mobility
Social Classes
E D C A/B
250
million of people
200
23
31
13
150
66
102
113
100
47
50
39
40
49
26
0
2003
2011
16
2014*
*FGV forecast
Source: FGV
53
General Overview
Social Mobility
Social Classes (% Composition)
2003
2009
2014*
7.6
10.6
15.5
C
37.6
50.4
56.5
D
26.7
23.6
20.0
E
28.1
15.3
8.0
100.0
100.0
100.0
A/B
Total
* FGV forecast
Source: FGV
54
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1992
1993
1995
1996
1997
1998
1999
2001
2002
2003
2004
2005
2006
2007
2008
2009
years
General Overview
Years of Schooling*
7.5
7.0
6.5
6.0
5.5
5.0
4.5
4.0
3.5
*people older than 24 years-old
Source: IBGE
55
Recent Economic
Indicators
56
Recent Economic Indicators
Industrial Production
130
Seasonally
adjusted
125
Jun 11 / May 11
-1.9%
120
2007 = 100
115
110
105
Jun 11 / May 11
-1.6%
100
95
90
85
Industrial production
Source: IBGE
Jan 11
Jul 10
Jan 10
Jul 09
Jan 09
Jul 08
Jan 08
Jul 07
Jan 07
80
Capital goods
57
Recent Economic Indicators
Retail Sales
150
Seasonally
adjusted
Jun 11 / May 11
+0.5%
2007 = 100
140
130
Jun 11 / May 11
+0.2%
120
110
100
Retail sales
Source: IBGE
Jan 11
Jul 10
Jan 10
Jul 09
Jan 09
Jul 08
Jan 08
Jul 07
Jan 07
90
Retail Sales (including automobiles and construction materials)
58
Recent Economic Indicators
Industrial Production vs. Retail Sales
150
Jun 11 / May 11
+0.5%
Seasonally
adjusted
140
2007 = 100
130
120
110
100
Jun 11 / May 11
-1.6%
90
Jan 11
Jul 10
Jan 10
Jul 09
Jan 09
Jul 08
Jan 08
Jul 07
Jan 07
80
Industrial Production
Expanded Retail Sales (including automobiles and construction…
Source: IBGE
59
Recent Economic Indicators
Consumer Confidence
Seasonally adjusted
125
Jul 11
121.0
120
Sep 05 = 100
115
historical
average
110
105
100
95
Source: FGV
Jul 11
Jan 11
Jul 10
Jan 10
Jul 09
Jan 09
Jul 08
Jan 08
Jul 07
Jan 07
90
60
Recent Economic Indicators
Industrial Capacity Utilization
88
86
Jul 11
84.1
84
%
historical
average
82
80
78
Source: FGV
Jul 11
Jan 11
Jul 10
Jan 10
Jul 09
Jan 09
Jul 08
Jan 08
Jul 07
Jan 07
76
61
Recent Economic Indicators
Unemployment Rate
11
10
9
%
8
7
6.2
6
5
2007
Source: IBGE
2008
2009
2010
Dec
Nov
Oct
Sep
Aug
Jul
Jun
May
Apr
Mar
Feb
Jan
4
2011
62
Recent Economic Indicators
Unemployment Rate
14
13.0
12
11.7
11.6
Unemployment rate
in June
10.4
10
9.7
%
9.4
7.9
8
8.1
7.0
6.2
6
Source: IBGE
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
4
63
Recent Economic Indicators
Leading Indicator
IBC-Br: Brazilian Economic Activity Index
150
2002 = 100 (seasonnally adjusted)
May 11/Apr 11
0.2%
145
140
135
130
125
120
Source: BCB
Jan 11
Jul 10
Jan 10
Jul 09
Jan 09
Jul 08
Jan 08
Jul 07
Jan 07
115
64
Recent Economic Indicators
Contribution to GDP
Accumulated in four quarters
12
10
8.8
8
%
6
4
2
0
-2
Sources: IBGE / BCB
4Q 10
3Q 10
2Q 10
1Q 10
4Q 09
3Q 09
2Q 09
1Q 09
4Q 08
3Q 08
2Q 08
1Q 08
4Q 07
3Q 07
2Q 07
1Q 07
4Q 06
3Q 06
2Q 06
1Q 06
External Sector
1Q 11
-2.5
-4
Domestic Demand
65
Source: BCB
Trade in Goods and Services
Financial
Jul 11
Jun 11
May 11
Apr 11
Mar 11
Feb 11
Jan 11
Dec 10
Nov 10
Oct 10
Sep 10
Aug 10
Jul 10
Jun 10
May 10
Apr 10
Mar 10
Feb 10
Jan 10
US$ billion
Recent Economic Indicators
FX Inflows (monthly data)
20
15
10
5
0
-5
Total
66
The National Financial
System
67
The National Financial System
The National Financial System
NATIONAL
FINANCIAL SYSTEM
Management Council
of Complementary
Pension - CGPC
National Monetary
Council - CMN
National Council of
Private InsuranceCNSP
Securities and
Exchange
Comission- CVM
Central Bank of
Brazil - BCB
Financial
Institutions
Exchange
Brokers
Other financial
intermediaries
Commodities
and Futures
Exchange
Stock Exchange
Bovespa
Other financial
intermediaries
National Monetary Council (CMN)
- Composed by the Minister of Finance, the Minister of Planning, Budget
and Management and the Governor of the Central Bank of Brazil
- Establishes the inflation target for monetary policy, prudential rules and
credit policy
- The Central Bank of Brazil is the financial supervisory authority
Source: BCB
68
The National Financial System
Central Bank of Brazil – Main Activities
Wide scope of Central Bank’s authority helps
policy coordination
Financial
Regulation
Monetary
Policy
Financial
Supervision
69
The National Financial System
Number of Institutions by Type
Type
2007
2008
2009
2010
135
140
139
137
Commercial bank
20
18
18
19
Development bank
4
4
4
4
Savings bank
1
1
1
1
17
17
16
15
Multiple bank
Investment bank
Exchange bank
2
Consumer finance company
52
55
59
61
Security brokerage company
107
107
105
103
Exchange brokerage company
46
45
45
44
Security distribution company
135
135
125
125
Leasing company
38
36
33
32
Real estate credit company and savings and loan association
18
16
16
14
6
6
6
7
12
12
14
15
591
592
581
579
1,465
1,453
1,405
1,370
52
47
45
45
2,108
2,092
2,031
1,994
329
317
308
300
2,437
2,409
2,339
2,294
Mortgage company
Development agency
Credit cooperatives
Micro-entrepreneur credit company
Consorcio company
Total
70
The National Financial System
Top 10 Financial Institutions
Name
Ownership
Total
assets
Credit
operations
Total
deposits
Net
worth
Employees
Branches
Basel
capital
ratio
(R$ billion)
(R$ billion)
(R$ billion)
(R$ billion)
(Thousand)
(#)
(%)
Banco do Brasil
Federal government owned
779
334
377
50
126
5,088
14.0
Itaú
Domestic private
720
234
215
62
121
3,767
15.5
Bradesco
Domestic private
563
197
194
48
86
3,636
14.7
BNDES
Federal government owned
521
177
22
66
3
1
19.7
Caixa
Federal government owned
401
176
215
15
108
2,209
13.6
Santander
Foreign controlled private
376
142
118
65
54
2,395
28.1
HSBC
Foreign controlled private
125
40
77
8
30
866
13.4
Votorantim
Domestic private
111
52
24
8
2
27
13.1
Safra
Domestic private
76
31
15
6
6
100
14.0
Citibank
Foreign controlled private
54
11
15
5
6
128
13.2
624
240
216
86
64
1,619
4,350
1,633
1,488
420
606
19,836
Others
Banking segment total
December 2010
Source: BCB
71
The National Financial System
Brazilian Banks - Capital Adequacy Ratio
18.5
17.4
17.8
17.3
17.7
2006
2007
2008
18.8
2005
19.0
20
16.6
16.9
14.8
%
15
13.8
10
5
Brazilian banks capital ratio
Regulatory minimum capital ratio
Source: BCB
2010
2009
2004
2003
2002
2001
2000
0
Basel minimum capital ratio
72
Prudential Regulation
and Supervision
73
Prudential Regulation and Supervision
General Features
• All FIs regulated and supervised
• Financial regulation mostly infra-legal
• Convergence to international standards (IFRS,
Basel II, IOSCO)
• Participation in international forums (BCBS, G20,
FSB)
• Generally conservative financial regulation
74
Prudential Regulation and Supervision
Financial Supervision - Main Features
• Risk-based approach to supervision
• On-site supervision
- frequent on-site examination
- rating of supervised institutions
–
qualitative assessment of risk management and control
–
analysis of financial and economic indicators
–
identification of areas to be monitored
• Includes contingency planning and assessment
of organizational structures dedicated to risks
75
Prudential Regulation and Supervision
Off-Site Supervision
• Directs on-site supervision towards the riskier
areas
• Specific monitoring of market and liquidity risks
- uses information on assets and derivatives registered
in clearing houses
- conciliation with FIs’ accounting information
• Monitoring of aggregate evolution of systemic
risk over time
• Periodic application of stress tests to FIs’
statements
76
Prudential Regulation and Supervision
Conservative Features - Regulation
• Minimum capital ratio: 11% of RWA (above Basel
minimum of 8%)
• Capital requirement for credit risk on trading book
exposures (except stock)
• Lower risk weights for residential property exposures
conditioned to loan-to-value
- LTV < 50%
- 50% < LTV < 80%
- 80% < LTV < 100%
35% risk weight
50% risk weight
75% (retail) or 100% (otherwise)
• Higher multipliers for standardized market risk
requirement
• Forward-looking provisioning rule
77
Prudential Regulation and Supervision
Conservative Features - Regulation
• Mandatory organizational structure for
management of each risk factor
- Credit, market and operational risks
- Board accountability on risk management
• Limits on large exposures
• Limits on foreign currency exposures
• Mandatory registration of OTC derivatives
• Mandatory internal controls
78
Prudential Regulation and Supervision
Credit: Provisions vs. Non Performing Loans
5.0
2.25
2.15
4.5
4.0
%
1.95
ratio
2.05
1.85
3.5
1.75
3.0
1.65
Source: BCB
Jan 11
Provisions/ NPLs (RHS)
Jul 10
Jan 10
Jul 09
Jan 09
Jul 08
Jan 08
NPLs (LHS)
Jul 07
Jan 07
Jul 06
Jan 06
Jul 05
Jan 05
Jul 04
1.55
Jan 04
2.5
data until June 2011
79
Prudential Regulation and Supervision
Recent Macroprudential Measures
• Increased capital requirements for consumer loan
exposures involving longer maturities and higher LTVs.
The risk weight for such exposures was increased from
100 to 150%.
Operation
Maturity and LTV
Risk Weight
between 24 and 36 months and LTV > 80%
Vehicles (financing
and leasing)
between 36 and 48 months and LTV > 70%
between 48 and 60 months and LTV > 60%
150%
more than 60 months and any LTV
Payroll-deducted loan
more than 36 months
Personal loan
more than 24 months
Other consumer loans
100%*
*Unchanged
80
Prudential Regulation and Supervision
Recent Macroprudential Measures
• Increased bank reserve requirements on demand
and time deposits
- Volume estimated: R$ 65 billion
• Established unremunerated reserve requirement on
short spot FX positions above a limit
- Limit: the lower of US$1 billion or the bank’s capital base
• Minimum payment for credit card bill
- 15% (June 2011)
- 20% (December 2011)
81
Prudential Regulation and Supervision
Recent Macroprudential Measures
• Established the Financial Stability Committee (Comef)
within the Central Bank, in order to coordinate the Bank's
efforts to monitor, evaluate, and mitigate systemic risk
- Membership: Governor and Deputy Governors
- Bimonthly meetings
- Take over responsibility for the Bank’s biannual Financial
Stability Report
82
Prudential Regulation and Supervision
New Loans: Vehicles
Dec 10
12
10
R$ billion
8
6
4
May 11
Mar 11
Jan 11
Nov 10
Sep 10
Jul 10
May 10
Mar 10
Jan 10
Nov 09
Sep 09
Jul 09
May 09
Mar 09
Jan 09
2
data until June 2011
Source: BCB
83
Prudential Regulation and Supervision
New Loans: Personal Credit
Dec 10
16
R$ billion
14
12
10
Apr 11
Jan 11
Oct 10
Jul 10
Apr 10
Jan 10
Oct 09
Jul 09
Apr 09
Jan 09
8
data until June 2011
Source: BCB
84
Access to Banking
Services
85
Access to Banking Services
Access to Banking Services
2002
2009
Present
Accounts (for the bank sector)
55,708,468
83,308,800
90,682,450
Customers
87,630,527
151,102,765
161,767,320
For the banking sector
17,049
20,046
19,876
For all financial institutions
17,756
21,287
22,429
32,769
53,628
58,890
129,913
165,567
165,479
78,539
151,351
159,504
222
-
-
5,358
5,566
5,566
96%
100%
100%
Branches
Posts of service (for the banking sector)
ATM’s
Domestic correspondents
Municipalities
Without banking services
With banking services
Municipalities banking services coverage
Source: BCB
86
Access to Banking Services
Bank Correspondents
• Definition: non-financial firms hired by FIs to
render basic banking services on their behalf
• Main correspondent chains are post offices,
lottery outlets, supermarket …
• Over 150,000 points of sale, compared to 20,000
branches of FIs (Feb. 2010)
• Allows banking system to cover all 5,566
municipalities
• Due diligence and anti-money laundering rules
apply to correspondents
87
Access to Banking Services
Bank Correspondents
• Main services are handling basic account
transactions and receiving loan applications,
processing payments, and transferring funds
• Bank-based model: financial institution (licensed,
supervised) takes full responsibility for the
services
• Correspondent may not charge additional fees to
the public for its services
• Main activity of the correspondent has to be
commercial, non-related to financial services
88
Access to Banking Services
Synergies in Correspondent Banking
• Benefits for the bank
- Broadens client base
- Smaller overhead and direct costs
- Informal environment: more inviting for lower-income
customers
- Flexible hours of operation
• Benefits for the correspondent
-
Transaction fees from the bank
Use of spare capacity
Increased flow of customers
Links the firm to a renowned brand
89
Access to Banking Services
Simplified Accounts
• For individuals only
• No check books (only cards)
• Depositor is precluded from having any other
accounts
• Account balance limit of R$2,000 (around US$
1,210 as of Mar 2010)
• No maintenance fees
• Simplified identification requirements
90
Fostering Competition
in the Banking Sector
91
Fostering Competition in the Banking Sector
Fostering Competition on Two Fronts
• Portability
- Mandatory availability of personal data
- Simplified transfer of loans
- Salary transfer to other banks, free of charge
• Transparency
- Implementation of credit bureau
- Standardized disclosure of service fees and cost of loans
- Information on fees, rates and complaints on Central Bank’s
website
92
Fostering Competition in the Banking Sector
Credit Bureau System (SCR)
• Created in 1997
• Exposures over R$ 5,000 have to be informed
on an individual basis
• Dual objective
- Provision of information on client’s bank debt to FIs’
- Large database for supervisory use
• All financial institutions required to send
information
• Access of banks to a particular client’s
information must be authorized by client
93
Glossary
BCB
Brazilian Central Bank
BNDES National Bank of Economic and Social Development
CMN
Brazilian National Monetary Council
CVM
Brazilian Securities Commission
FAO
Food and Agriculture Organization
FGV
Getulio Vargas Foundation
IBGE
Brazilian Institute of Geography and Statistics
IMF
International Monetary Fund
IPEA
Institute for Applied Economic Research
MDIC
Ministry of Development, Industry and Foreign Trade
UM
United Nations
94