Not really, said S&P; today.
Standard & Poor’s Ratings Services has raised its view of Brazil’s banking sector after revising its risk assessment methodology, highlighting local banks’ low dependency on foreign funds.

On a scale of 1 to 10 (where 1 is good), Brazil has moved up to 4 from 5. In other words, its banks are now as safe as those in Mexico, Spain, Taiwan, Israel, and Peru, safer than Ireland, Greece, Portugal, and Argentina, but more risky than Singapore, New Zealand, the UK, the US and Germany.

According to S&P;, the risks within the banking industry itself in Brazil are even lower, deserving an ‘industry risk score’ of 3 (on a scale of 1 to 10 – where 1 is good). The group cites “regulation that is in line with international standards”, “a sound track record of regulators’ ability to cope with past crises”, “the banking authorities’ effective supervision and close monitoring of the financial system”, “moderate risk appetite of the banking sector”, and “no high-risk products or techniques to shift risks off their financial statements”. They also point out that the banking system in Brazil “bases its funding on stable domestic customer deposits as a percentage of total loans (close to 90%), with a low dependence on foreign funding as a percentage of total loans (below 4%)”.

So what is letting the industry down?

S&P; attributes the risk in Brazil’s banking sector mainly to macro factors, giving the banks an ‘economic risk score’ of 5. The principal reason is that “Brazil’s structural rigidities, and the need to increase investments are likely to result in spending pressures, challenging fiscal performance and weakening its capacity to mitigate the impact of external shocks through countercyclical policies.”

In other words, what is letting Brazil’s banks down is Brazil. If you look at the industry risks alone, Brazil’s banks are actually just as safe as those in Germany and the UK, and even safer (perhaps unsurprisingly) than those in the US.

Sources: Wall Street Journal, Financial times

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