The president of Febraban (Brazilian Federation of Banks), Isaac Sidney, argues that the profitability of Brazilian banks does not deviate from the standard for the sector. In an exclusive interview with UOL, he classifies as a “fallacy” the idea that institutions in the country have excess profitability. In addition, he claims that there is competition between banks in Brazil.
The comments by Sidney, who before heading Febraban was a career employee at the Central Bank — the Brazilian banking sector’s regulatory body — came after a study by financial data analysis company Economatica indicated that, of the ten most profitable banks in the world, four are Brazilians. They are: Santander (Brazil), Itaú Unibanco, Banco do Brasil and Bradesco.
The Economatica survey considered banks that have assets above US$100 billion — in practice, the largest financial institutions in the world. In the ranking of the ten most profitable, the other six are banks in the United States and Canada. The data refer to the performance of institutions in 2021.
O UOL asked Sidney about the reasons for Brazilian banks to be so profitable.
This [rentabilidade elevada dos bancos brasileiros] is another fallacy, the result of a boring litany that has grown tired. The profitability of the banking sector is not exceptional, nor is it out of 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 Febraban
Other sectors are more profitable, says executive
The president of Febraban says that other sectors of the economy have higher profitability than banks.
“When we took the 1,000 largest companies in Brazil, according to a survey carried out annually by the Valor Econômico newspaper, banks ranked 16th in sectoral profitability in 2020. That is, simply another 15 sectors were much more profitable than banks in the critical year of the pandemic”, says Sidney.
The executive also states that, when comparing the Brazilian banking sector with that of other countries, especially emerging ones, Brazil is not the most profitable. “We lost to Mexico and Argentina, for example.”
Focused but disputed
Febraban also defends an idea that, for years, the Central Bank itself has spread: that the fact that there is concentration in the sector does not mean little competition. The federation says that the concentration in the country is moderate. “Banking, like others that require high volumes of capital, has a greater degree of concentration, especially in the so-called retail banking”, points out Sidney.
The assessment of this is not consensual, not even among scholars in Brazil. There are academics who cite the existence of an oligopoly, with few banks controlling most of the market, which harms competition. Others claim that, despite five banks (the four in the Economatica survey, plus Caixa Econômica Federal) controlling most of the market, there is fierce competition between them.
I can assure you that we have an extremely competitive banking sector in Brazil and, more than that, open to the entry of new competitors, both local and foreign. There are no regulatory barriers that prevent new competitors from entering our banking market. If the Brazilian banking sector had exceptional profitability and, as it is, open to the entry of new competitors, why not have major players? [competidores] global in our sector? The reality is that the Brazilian banking market has a lot of competition.
Isaac Sidney, president of Febraban
Profitability does not depend on interest
Sidney also contests the assessment of some economists that the higher Selic (basic interest rate) favors the results of banks. According to him, profitability depends on spreads — the difference between the cost of raising funds, by banks, and what is charged from the customer at the end — and not on the level of interest.
“High interest rates, like the ones we have historically in Brazil, are a strong indication of a structural distortion in the economy, which comes from decades, and the public power has done little to face this problem”, says Sidney. “With inflation under control, the balance of public accounts effectively preserved – which unfortunately we are not seeing – it will be possible to start the process of reducing or normalizing the Selic. And the economy will be able to grow again in a sustained way, which will be good for the companies, for families and for banks.”