Brazil’s national treasury has injected R$ 390.1 billion in the three banks controlled by the federal government (BNDES, Banco do Brasil, and Caixa Economica Federal) between late 2006 and October this year. During the period, the three banks’ market share of total loans rose from 36.8% to 46.6%.

The boom is a result of the government’s strategy to stimulate the economy and increase competition in the financial sector. The strategy remains active. It was just recently that the finance minister Guido Mantega announced another R$ 100 billion for 2013.

For many analysts, however, the model adopted by the government brings at least two risks. The first is financial: a very rapid credit growth may entail heavy losses in the future if there is any abrupt change in the Brazilian and/or global economy. That’s what led to the financial crisis that erupted in 2008.

“If today, with the Brazilian economy in a relatively good condition, default rates are high, what can happen if there is a turnaround?”, asked Austin Rating analyst Luis Miguel Santacreu. He argues that, currently, “the credit is walking ahead of the economy, when the ideal is that the two walk together.”

The analyst refers to the rate of expansion of loans and the Gross Domestic Product (GDP). In the 12 months ending in October, total credit in Brazil grew 16.6%, while GDP should advance about 1% this year.

At Caixa Economica Federal, the pace of credit growth has been much more significant: 45% yoy. In general, large private retail banks consider a healthy credit growth to be about twice that of the GDP, already discounting inflation.

Government Debt

The second risk experts appointed is regarding the government’s fiscal strategy: gross public debt is pressured by Treasury disbursements to banks, while the government’s net reserves (total assets minus debt) remains on a downward trend.

“If this policy is to be maintained indefinitely, it will lead Brazil to have solvency problems in the future,” said Felipe Salto, an analist at Tendencias Consultoria.

Salto notes that the Brazilian gross debt should end 2012 close to 64% of GDP, according to the IMF criteria. On average, this ratio for emerging countries hovers around around 35% of GDP. The developed nations’ debt, which caused the financial crisis, is currently at about 111% of GDP.

LCA Consultores’ Braulio Borges notes however that this data shows that the Brazilian gross debt today is not high nor low. “The issue is that prudence dictates that a government keep borrowing at low levels to have fiscal space if you face an unexpected crisis like 2008,” he said.

Former director of the Central Bank (BC), Jose Julio Senna, assesses the government must change strategy. “The problem in Brazil today is that it needs to stimulate the supply side of the economy, and not demand.The current strategy was acceptable at the peak of the crisis. But today we live in the chronic phase of the crisis, and the economy needs another kind of medicine.”

Senna doesn’t see solvency risks in Brazil today because several other countries have a worse fiscal situation. “My biggest concern is with the use of public resources that should be directed toward more pressing issues of everyday life of Brazilians, such as health, education and security.”

He adds further that loans made by private financial institutions tend to be better implemented (and hence more efficient) because there is generally no political interference in the decision.

Source: Estado de Sao Paulo

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19 Responses to Inflating the Balloon: Brazil injected R$400 billion in its public banks in the last 5 years

  1. frank stein says:


  2. Mertens says:

    The recipe for financial desaster ,credit expansion fasther than the increase of productivety.History repeating itself ,doing the same and hoping for an other result.

  3. Brazil says:

    This web page is funny. The BNDES is development for greenfield projects, which have to be cash generating, like a power plant, hydro, Oil pipeline, rail line, a toll road, a port facility, trucks, hotel development, etc. and it is subsidized by the tax payer.

    It is not for acquisition, M&A, or any crazy risk projects. Brazil’s Local debt to GDP is at 50%, which is much lower than most places and the external debts are 20% of GDP. Most of that debt is from development project. Personal credit is mostly from payment plans located in stores, and not from credit cards also . . .

    Brazil has it’s problems but most of them are not systematic bubble related, the only real bubble I see is asset price inflation but it is not a debt but a perception rise in prices and most of those prices should fall…

  4. Rodrigo Rodrigues( Official) says:

    I love when goverment calls” Brazil’s national treasury “money like was their money , How about tax payer money ( Overpaid and Underserved)?The reality is that taxes are being used to prop up the banks which will then be sold on to the profiteers at a later date!!!
    Your  tax money is being used to prop up the whole capitalist system and your whole future is being put at risk.
    they are privatising profit while socialising loss,While millions of Brazilians sit  hypnotized by the latest exploits on Big brother Brazil ,A Fazenda  , Salve Jorge( How about Salve Brazil?)there exists a collection of powerful financial groups  and other firms working to loot the pension plans, health system, existing infrastructure, and even tax revenue of all Brazilian citizens,It’s imperative that significant segments of the population become sufficiently capable of discerning the difference between advertising and economics,We live in an economy that is immensely complex, and we are completely at the mercy of the small group of people who understand it – who incidentally often happen to be the same people who built these wildly complex economic systems. We have to trust these people to do the right thing, but we can’t, because, well, money corrupts, and they will bendover like a whore,they’re scum. Which is kind of a big problem, when you think about it.” Or to put it more concisely, “…organized greed always defeats disorganized democracy.
    We have been royally flushed by the crooks who set up this rigged financial system – solely for their own benefit - 
    Brazilian politics, the economy, and democracy are but a failing illusion produced and projected upon the lands by a band of uber-rich dildos who fancy themselves kings and queens ,Pt, Pmdb, Psdb etc . . makes little difference. Money buys political clout and nominations, and the bottom ninety-nine percent of Brazilian citizens combined lack sufficient funds to buy much of squat in those departments. To disguise that depressing fact, we argue over meaningless non-choices and hold ultimately meaningless elections ever so often. And this great circus has thus far proven sufficient to veil our masters’ intent, which is to keep their slaves preoccupied or occupied watching UNReality tv shows.
    The scam works like this:
    1) Demagog Dilma Rouseff dictates  existing regulations relentlessly as the enemy of free enterprise; (2) use paid lobbyist to help justify, tear-down and then rewrite new regulations; (3) use lobbyists’ contributions to buy off the votes of key politicians in all parties to open up the laws for the impending thievery; (4) once legislation is passed, oversee the Banks casino with watchdogs that do not watch; and then (5) appoint members of the plutocracy who stand to gain the most, as facilitators and the media and the police force covering It up.
    You will only see a real change in this type of activity when the people wake up and start screaming.  just don’t see it happening. People have become too complacent in their own little worlds. They think the government can fix anything.

  5. Rodrigo Rodrigues( Official) says:

    So funny and true!! It made my day!!
    That’s What I keep saying.

  6. JGould says:

    Omfg!. “The BNDES is development for greenfield projects…It is not for acquisition, M&A, or any crazy risk projects” Are you a kind of the court jester? Marfrig, JBS, Independência…just to stay in butcheries!

  7. Samuel 2 says:

    Rodrigo, the scam happened many years ago, 1964 to be exact when the Banco Central was formed. Follow the links with open eyes.

    Let me issue and control a nation’s money and I care not who writes the laws.” Mayer Amschel Rothschild

  8. Rodrigo Rodrigues(The Other One) says:


    Ahhh…ahhhh !

    Is this a improvement or conspicuous consumption???? UNless this family used the debt to purchase an investment that has held its value or increased in value….ALL that has occurred is conspicuous consumption and a substantial drop in the family’s net worth!!!!!!!!!

    Keep borrowing at the Brazilian rate !! 52 % AVERAGE…all in all !
    In Brazil the motto is….BUY ONE….BUT PAY TWO…OR THREE !


    In the case of the Braz-zero economy that is primarily what has occurred. In the case of a family, instead of focusing on what they spend (THE GDP APPROACH) you focus on their net worth. Are they becoming wealthier or poorers. Why dont you focus on net worth to measure the state of the economy? Is there any surprise that government encourages you to spend???????
    It may make you worse off but it makes GDP look better. The fraud is that GDP measures spending, regardless of debt or inflation. A country is like a family…It is not better off because it spends more. It is better off when its WEALTH increases, The proper measure of well-being is Net Worth, which is often negatively related to spending.

  9. Rodrigo Rodrigues( Official) says:

    Joseph Goebbels Couldn’t Have Said It Better
    “If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.”

    Merry xmas all :)

  10. Steve says:

    Wow, cruel … but basically accurate :(

  11. frank stein says:

    The problem is there is NOTHING to show for it. Take the transposition of the Sao Francisco river, for example. What happened? Why nobody talks about it? The money is wasted in consumption and corruption. Nothing ever gets done in the way of investing in socioeconomic development. Brazil is a sorry joke.

  12. Jose says:

    Unemployed rates are at a minimum, but GDP does not grow. Just look at the efficiency and productivity of a Brazilian worker. Is it getting worse? Some salaries increased so much and are nearly equal salaries in USA and Europe, but the productivity is still a joke. Brazilians are earning much more than they deserve, they are unware of the illusion they are living in.

  13. FrParlentAuxFr says:

    Actually BNDES has been also funding RAIA3 before it was IPOed and later acquired at an insanely expensive stock ratio by DROGASIL. What would BDNES have to do with financing retail? The whole rate environment in Brazil is polluted by Government intervention. (RADL3 is a ubber short BTW).

    p. 388 of IPO statement

    Em 2007, iniciamos um processo acelerado de abertura de lojas financiado por alavancagem financeira predominantemente com recursos de curto prazo (que representavam 81% nossos empréstimos e financiamentos em 31 de dezembro de 2007). De forma a manter este ritmo intenso de expansão,
    trabalhamos, nos anos subsequentes, na readequação das linhas de crédito por meio da utilização de recursos de longo prazo do BNDES e Banco do Brasil, o que possibilitou a alocação de 63% de nossos empréstimos e financiamentos no longo prazo em 30 de setembro de 2010.

    p. 74 of IPO statement

    Na data deste Prospecto, além do relacionamento referente à presente Oferta, possuímos relacionamento comercial com o Itaú BBA e demais instituições financeiras integrantes de seu conglomerado financeiro, a
    saber quatro fianças bancárias contratadas como garantia de operações de financiamento celebradas por nós junto ao BNDES para a expansão de lojas e aquisição de veículos e equipamentos:
    • carta de fiança celebrada em 31 de julho de 2008, no valor de R$ 34,3 milhões, com vencimento a partir de 15 de setembro de 2015 e taxa de juros efetiva de 1,20% ao ano;
    • carta de fiança celebrada em 14 de outubro de 2009, no valor de R$ 12,8 milhões, com vencimento a partir de 15 de março de 2015 e taxa de juros efetiva de 1,20% ao ano;
    • carta de fiança celebrada em 29 de janeiro de 2010, no valor de R$ 12,7 milhões, com vencimento a partir de 15 de março de 2016 e taxa de juros efetiva de 3,25% ao ano; e
    • carta de fiança celebrada em 29 de janeiro de 2010, no valor de R$ 35,4 milhões, com vencimento a partir de 15 de setembro de 2016 e taxa de juros efetiva de 3,25% ao ano.

  14. FrParlentAuxFr says:

    Funny my comment about retailers using BNDES financing was not showed apparently…

  15. Brazil says:

    So around 1% of the total US bailout figures . . . The country still has around 1% of the total foreign debt compared to the US and is still sustainable, despite problems that EVERY country in the world has. And don’t forget FDI is still strong and real wages are up vs most G7 nations are way down . . .

  16. Nick says:

    I know the commenters here tend to pessimistic on Brazil (and I have become more cautious since I have found this site), but at level on the Bovespa would you think would be bottom? Also what policy reforms (such as freeing up trade) would be the sign of a turnaround. Brazil looks like a value, but global recession may push stocks even lower here.

  17. Florent says:

    Brasil fecha 2012 com a menor entrada de dólares desde 2008

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