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Brazilian Banking Sector Stability and Funding Situation

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Industry Stability

The Brazilian financial system consists of 136 banks, four development banks, and other 1,178 financial institutions. The ten largest banks control about 80% of the market in terms of deposits.

  • Market share among the largest players has been fairly stable in the past five years.
  • Demand for digitalized banking is rising due to convenience, lower costs, and relatively low access to credit.

Market Distortions

The presence of government-owned banks creates market distortion due to a spread differential between public and private banks. This distorts the market share, with government-owned banks holding around 45% of the market.

  • Government-owned banks are expected to focus on their traditional areas of expertise and reduce their share in non-core businesses.
  • This will help to level the playing field for private sector banks and promote fair competition.

Systemwide Funding

The banking sector benefits from a sizeable and stable source of retail deposits. Core customer deposits accounted for 78% of total loans over the past five years.

  • The sector has a low exposure to external funding, with net external funding averaging 9% of total loans over the past two years.
  • This stability in funding is a positive indicator of the banking sector’s health and resilience.

External Funding

The Brazilian banking sector’s exposure to external funding is moderate, and refinancing risk is low. This suggests that the sector is well-positioned to manage its funding requirements and maintain stability.

Domestic Debt-Capital Markets

Brazil’s debt capital markets are moderately broad and deep. Market depth has been improving in the past five years due to increased appetite for private-sector debt from pension and mutual funds.

  • The appetite for higher returns is expected to broaden available funds for banks and corporate issuers over the next three years.
  • This will provide opportunities for growth and development in the banking sector and promote economic stability.