brazilian banks and liquidity peter shaw managing director, latin america financial institution...
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Brazilian Banks and Liquidity
Peter ShawManaging Director, Latin America Financial Institution
Brazilian Chamber of Commerce
New York, October 27, 2008
Loan Growth Leads to Diversified Portfolio
Loan Growth Loan by Segment, June 2008
Source: Fitch Ratings Source: Brazil Central Bank
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Top 10 Banks Brazilian Bank system
Individuals34%
Industry23%
Services17%
Trade10%
Government
2%Rural9%
Real estate5% Government
2%
Asset Quality – Adequate to Date, But Will Be Challenged
Non Performing Loans*/Gross Loans
Loan Loss Reserves/ Non-Performing Loans*
* For Brazilian System and banks HSBC were considered loans classified from E-HSource: Fitch Ratings.
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Top 10 Banks Brazilian Bank system
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Top 10 Banks Brazilian Bank system
Capital Compares Well Regionally
Total Capital Capital Tier 1
Source: Fitch Rating
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(%)Top 10 Banks Top 50 Banks
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(%)Top 10 Banks Top 50 Banks
Funding Largely Made in Brazil
49.4 52.9 54.4 52.2 49.5 53.7
9.99.9 9.5 8.5 8.2
9.911.1 9.9 6.9
5.9 6.66.2
20.1 17.6 19 22.8 25 18.2
7.8 8.1 8.1 8.2 8.1 8.5
3.52.72.421.51.5
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2003 2004 2005 2006 2007 June 2008
(%)
Total deposit Local funding Foreign fundingOpen market Subordinated debt Others funding
Source: Fitch Ratings
Third Party Funding Composition Top 10 Banks
Focus on Liquidity – Talking Points
> Flight to quality vs. Flight from the system, benefiting larger banks– Beneficiaries starting to deploy liquidity
> Funding largely “Made in Brazil”– Less than 10% of total funding is cross border
> Like the rest of the world, a broad funding base is proving its worth– Most vulnerable are those dependent on institutional funding
> Inherent mismatch, exacerbated by longer term consignado lending
> Regulators proactive in providing tools for managing through liquidity pressures
THEREFORE
> Approach ahead will be to rate fundamentals, not volatility> Banks are actively managing individual situations – generally realistic in their
approach, prioritizing liquidity over prior strategic goals, and assets are proving good source of liquidity– Successful in managing liability outflow, but may damage franchises in medium, term
> National ratings express our view of relative creditworthiness, and make use of broad range of scale
The Fitch Group Fitch Ratings Algorithmics Fitch Solutions
Fitch Ratingswww.fitchratings.com
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