Let us start with a brief explanation first… 
For those who are not so familiar with the term, the bank spread is the difference between the interest charged by banks on loans (to individuals and businesses) and the interest paid by these same banks to depositors who leave their money in the bank itself.

The higher the banking spread, the greater the profit that banks have in lending operations. This is the reason that the banking spread in Brazil, among the highest in the world at around 40% to 50%, is severely criticized by independent economists, union leaders, businessmen and government as this is money that could be moving the economy but has been swallowed by the banks (Itau Unibanco, Bradesco, HSBC etc). Despite a decline in interest rates since mid-1999, bank spread in Brazil continues extremely high.

As an example of this outrageous mismatch is that the banking spread in Brazil has risen an additional 2% over the last three months alone. And the irony is that in this same period, the banks’ cost fell (remember that the Selic rate has been dropping, although still high to international standards). One can argue that the delinquency rates have been steadily going up, but it just does not justify it completely.

As we write, the interest on overdraft (“cheque especial”) is 183.8% a year, and the personal credit just rose to 52.2% per year.

Simply outrageous!


We will talk more about this subject in the next few weeks. For now, here are some other related links:

1. This Folha article (in portuguese) just shows how personal credit is 6x the Selic rate, an absurd for any economic textbook.

2. And this paper (in Portuguese) helps explain the bank spreads in Brazil in a more theoretical way, analyzing data since the “Plano Real” in 1999.

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