“(Reuters) – President Dilma Rousseff’s government has pulled out all the stops to persuade Brazilianbanks to lend more – pushing interest rates to an all-time low, leaning on state-run lenders, and even publicly shaming the industry for its high profits.
Yet banks have generally gone in a different direction, slashing costs as a way to protect their bottom lines from Rousseff’s offensive.
Many private-sector banks are cutting jobs and outsourcing services as profitability falls to multi-year lows. Even some state-run banks have indicated they may follow suit. Credit growth, meanwhile, has remained stagnant.
“The sector is naturally focusing on efficiency as part of a ‘new normal’ – banks in Brazil are changing dramatically,” Marcial Portela Álvarez, chief executive of Banco Santander Brasil SA (SANB11.SA), said at a recent event. “Cost efficiency is at the core of those changes.”
Bank sector austerity has stung Latin America’s largest economy. Activity in the financial sector shrank 1.3 percent in the third quarter as banks adjusted to the changes Rousseff has imposed since April.
Bank struggles were a drag on gross domestic product, which grew just 0.6 percent in the third quarter, less than half the pace analysts had expected. That put Brazil on track for second straight year of below-trend growth.
Government officials describe the problems as a painful but necessary transition after years in which they say banks got far too fat because of the highest interest rates among the world’s top 20 economies. Banks’ return on equity, a gauge of how much a bank earns per dollar of shareholder money invested, surpassed those of other sectors by a large margin in the past decade.
For years, bankers paid little attention to efficiency since borrowers were charged average annual lending rates above 40 percent and government debt yielded fabulous returns.
Banks in Brazil face high overhead largely due to the low average maturity of their loan books, rigid labor costs and high taxes.
As a result, they lagged global peers in cost efficiency. Expenses in Brazil represented 6 percent of assets last year, compared with 3 percent in the United States and 1.5 percent in Europe, according to Goldman Sachs Group Inc estimates….”