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THE BRAZILIAN DOMESTIC (“NATIONAL”)
FINANCIAL SYSTEM “SFN” – an overview
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Federal Constitution sets the rules for operations and
regulation of the Brazilian Financial System
Specific laws for Banking, Insurance, Capital Markets
Major entity of the SFN:
- National Monetary Council – “CMN”
- Formulates the policy for Currency and Credit aiming at
financial stability and social and economic development.
Present composition:
 Minister of Finance and its chairman
 Minister of Planning
 Governor of Central Bank
THE BRAZILIAN DOMESTIC (“NATIONAL”)
FINANCIAL SYSTEM “SFN” – an overview

Regulators and Supervisors of the SFN
(governmental agencies)
For the Banking Industry
- Central Bank of Brazil
For the Capital Markets
- Brazilian Securities and Exchange Commission “CVM”
For the Insurance Industry
- Superintendency of Private Insurance “SUSEP”
For the Pension Funds Industry (Institutional Investors)
- Superintendency for Complementary Pensions (Private
Employee Benefit Programs) “SPC”
THE BRAZILIAN DOMESTIC (“NATIONAL”)
FINANCIAL SYSTEM “SFN” – an overview
CENTRAL BANK OF BRAZIL
- MAIN DUTIES: REGULATION, AUTHORIZATION, SUPERVISION
- LENDER OF LAST RESORT
- IS CUSTODIAN OF COUNTRY’S INT’L. RESERVES
- MANAGES CURRENCY ISSUANCE – LIQUIDITY LEVELS OF THE
ECONOMY
- SETS OUT THE BASIC INTEREST RATE OF THE ECONOMY –
INFLATION CONTROL / TARGET
- BOARD NOMINATIONS SUBJECT TO SENATE APPROVAL
- NO FIXED TERM OF OFFICE
- GOVERNOR: MINISTERIAL STATUS
- NO SELF REGULATION IN VIRTUALLY ANY ASPECT OF THE
BANKING ACTIVITY
THE BRAZILIAN DOMESTIC (“NATIONAL”)
FINANCIAL SYSTEM “SFN” – an overview
THE BRAZILIAN SECURITIES COMMISSION:
MAIN DUTIES: REGULATION, AUTHORIZATION, SUPERVISION
- DIFFERENT FROM CENTRAL BANK: MARKET DEVELOPMENT
- BOARD NOMINATIONS SUBJECT TO SENATE APPROVAL
- FIXED TERM OF OFFICE
- ALLOWS SELF REGULATION
-
THE BRAZILIAN DOMESTIC (“NATIONAL”)
FINANCIAL SYSTEM “SFN” – an overview
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Credit granted in Brazil totalled 31.6% of GDP in 2005
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This volume is very small – for instance, in relation to their respective GDP’s
the following are the equivalent volumes of credit granted in some other
countries:
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Chile – 70%
South Korea – 93%
USA – 146%
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Portugal – 140%
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Issues for discussion:
- Interest rate x credit demand by the public sector
- Interest rate x legal risk
- Interest rate x consumer financial ‘capacity’
- Banking industry ‘ concentration’ x market competition
BRAZILIAN FEDERATION OF BANKS – FEBRABAN and RESEARCH
FOUNDATION FIPECAFI
ANALYSIS OF THE SPREAD IN THE
BRAZILIAN BANKING INDUSTRY AND
COMPARISON WITH THE CONSOLIDATED
“VALUE ADDED” STATEMENT OF
BRAZILIAN BANKS
FIPECAFI - FUNDAÇÃO INSTITUTO DE PESQUISAS CONTÁBEIS ATUARIAIS E
SPREAD
BANKING INDUSTRY
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SPREAD BANKING INDUSTRY
1st Semester 2005
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Research based upon Financial Statements
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Sample of 11 Banks:
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State owned
Large domestic private banks
Large foreign owned banks
Small domestic private banks
Sample x Industry
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75,8% of Total Assets
76,4% of Credit outstanding / granted
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SPREAD of the Banking Industry – our Model
RESULTS
Margin
Average Balance of Capital (Principal) Lent
A) Interest Revenue from Credit Granted
Spread
100%
100%
%
(%)
(%)
C) GROSS MARGIN/SPREAD
%
%
D) Direct / Variable Expenses
(%)
(%)
%
%
(%)
(%)
%
%
(%)
(%)
%
%
B) Funding Costs

Basic Interbanking Rate (“CDI”)
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Gain on Fund Raising below CDI
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Taxes on credit operations
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Doubtful receivables
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Insurance Credit
E) DIRECT MARGIN/SPREAD
F) Operating Expenses and Overhead

Labor and other operating expenses
G) MARGIN/SPREAD before Income Taxes
H) Income Taxes
I) NET MARGIN/SPREAD
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MAJOR FINDINGS
Corporations (PJ) and Individuals (PF)
PJ
PF
TOTAL
Interest Revenue from Credit
Operations
100,0% 100,0% 100,0%
Funding costs
- 50,8% - 29,6% - 38,0%
Gross Margin
49,2%
70,4%
62,0%
Direct Margin
34,6%
46,0%
41,5%
Net Margin
5,3%
10,0%
8,1%
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SPREADS
Corporations (PJ) and Individuals (PF)
PJ
Total Capital Lent (Principal)
Interest Revenue from Credit
Operations
Funding Costs
PF
TOTAL
100,0% 100,0% 100,0
9,4%
16,5% 12,7%
- 4,8%
- 4,9% - 4,8%
Gross Spread
4,6%
11,6%
7,9%
Direct (Variable) Spread
3,2%
7,6%
5,3%
Net Spread
0,5%
1,6%
1,0%
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DVA
VALUE ADDED ANALYSIS – BRAZILIAN
BANKIING INDUSTRY
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VALUE ADDED STATEMENT “DVA”
BRAZIL CONSOLIDATED
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All Brazilian Commercial and Universal Banks,
Leasing Co’s., Finance Co’s, and Investment
Banks
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Value added generated by:
- Credit Operations
- Treasury Operations – Bond Trading
- Fees from Services rendered
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DVA – 1st SEMESTER 2005
From Credit
Oper.
From
Treasury
Interest Revenue
100%
100%
( - ) Accrual for Bad Debts
- 13%
Serv.
Fees
SOURCES
Service Fees
(-) Deprec., Amortiz. And other
100%
- 24%
- 7%
- 51%
64%
93%
49%
Interest Paid
36%
74%
Compensation (labor costs)
10%
3%
22%
Taxes
8%
7%
15%
Net Income
9%
9%
12%
64%
93%
49%
Value Added
USES/DISTRIBUTION
Value Distributed
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