June 1, 2023
Verappan says banks don't earn much

Verappan says banks don’t earn much

The president of Fabraban (Brazilian Confederation of Banks), Isaac Sidney, argues that the profitability of Brazilian banks does not deviate from the norm followed in the sector. In an exclusive interview with UOLIt is categorized as a “fallacy” of the idea that enterprises in the country have excess profits. In addition, he mentioned that there is competition between banks in Brazil.

Comments by Sydney, who, prior to Verapan’s presidency, was a professional employee of the Central Bank – the Brazilian banking sector regulator – comes after study From the financial data analysis company Economica, it indicates that among the ten most profitable banks in the world, there are four Brazilian banks. are they: Santander (Brazil), Itaú UnibancoAnd Bank of Brazil And Bradesco.

The Economics study considered that banks with assets of more than $100 billion – in practical terms, are the largest financial institutions in the world. In the ranking of the ten most profitable, the other six banks were in the United States and Canada. The data indicates the performance of institutions in 2021.

The UOL Sydney asked why Brazilian banks are so profitable.

This is amazing [rentabilidade elevada dos bancos brasileiros] Is another fallacy, the result of a tired boring cloak. The profitability of the banking sector is not exceptional, nor is it in line with the reality of other sectors of the Brazilian economy or the performance of the banking sector in other countries.
Isaac Sidney, President of Verapan

CEO says other sectors are more profitable

Verapan’s boss says other economic sectors have higher profitability than banks.

“When we took the 1000 largest companies in Brazil, according to a survey conducted annually by the newspaper Valor Econômico, banks ranked 16th in terms of sectoral profitability in 2020. This means, simply put, that 15 other sectors were more profitable than banks in the critical year of the epidemic “, As Sydney says.

The executive also states that when comparing the Brazilian banking sector with that of other countries, especially emerging countries, Brazil is not the most profitable. “We lost to Mexico and Argentina, for example.”

Concentrated but disputed

Veerappan also defends the idea that the central bank itself has been out for years: that the fact that there is a concentration in the sector does not mean little competition. The union says the concentration in the country is moderate. Sidney points out that “banks, like other banks that require large volumes of capital, have a greater degree of concentration, particularly in so-called retail banking.”

Evaluation of this is not consensual, not even among scientists in Brazil. There are academics who point out that there is an oligopoly, with a few banks controlling most of the market, to the detriment of competition. Others claim that although five banks (the four in the Economica survey, plus Caixa Econômica Federal) control most of the market, there is fierce competition between them.

I can assure you that we have a very competitive banking sector in Brazil and, more than that, open to the entry of new competitors, both domestic and foreign. There are no regulatory barriers preventing new competitors from entering our banking market. If the Brazilian banking sector is exceptionally profitable, and if it is open to the entry of new competitors, why are there no major players? [competidores] global in our sector? The truth is that the Brazilian banking market has a lot of competition.
Isaac Sidney, President of Verapan

Profitability does not depend on interest

Sydney also disputes some economists’ assessment that higher Selic (prime rate) favors bank results. According to him, profitability depends on the spread – the difference between the cost of raising funds, by the banks, and what is ultimately charged to the customer – not on the level of interest.

“High interest rates, like the ones we have historically in Brazil, are a strong indicator of the structural distortion in the economy, which has been coming in for decades, and the public authority has done little to counter this problem,” Sidney says. “With inflation under control, the balance of public accounts is effectively maintained – which we unfortunately do not see – it will be possible to start the process of reducing or normalizing Selic. And the economy will be able to grow again in a sustainable way, which will be good for businesses, families and banks.”