COUNTRY PROFILE
Total land area:.................... 8,456,510 sq. km.
Official language:..................Portuguese
Administrative divisions:........ 26 states and one federal district
Legal system:....................... Based on Latin codes; has not
accepted compulsory ICJ jurisdiction.
Executive branch:................. President, vice president, cabinet
Legislative branch:................ Bicameral National Congress consists
of an upper chamber, or Senate, and a
lower chamber, or Chamber of Deputies.
Judicial branch:..................... Supreme Federal Tribunal
ECONOMIC PROFILE
Currency: Real (R$)
GDP: US$504.9 billion (1997)
Real GDP growth (at market prices, sector of origin at factor cost):
3.0 (1997p)
GDP (average annual growth rate): 1.8 (1988-1997)
GDP per capita (1990 US$): 3,090.1 (1997)
Consumer price index (average annual growth rate): 7.5% (1997)
Nonfinancial public sector operational balance (% of current GDP):
-3.2 (1997)
Money supply (M1) (% of current GDP): 2.8 (1997)
Interest rate (annualized nominal monthly overnight market rate): 24.6
(1997p)
Current account balance: -US$33.4 billion (1997)
Trade balance: -US$8.3 billion (1997)
Main exports: Manufactured products, iron ore, coffee, soybeans, bran
and oil.
Main imports: Machines and electrical material, fuels and lubricants,
transport
equipment parts, chemical products
Nominal exchange rate (R$/US$, end of period): 1.1 (1997)
Real effective exchange rate (Index 1990=100): 85.0 (1997)
BANKING SYSTEM
Total number of banks in the system: 208 (7-1998)
Types of banks: Multiple, commercial, and economic cash banks.
Total amount of assets: *US$507.9 billion (174 banks), June 1998
Total amount of deposits: *US$183.8 billion (174 banks) June 1998
Total amount of capital or net worth: *US$40.7 billion (174 banks)
June 1998
* Updated to October 21, 1998 with published balance sheets.
BANKING INSTITUTIONS
I. Banking Supervision
1. The Banco Central do
Brasil (Central Bank of Brazil) is the primary supervisory body
of the Brazilian banking system.
2. The supervisory body
is not an independent agency.
3. The Central Bank reports
to the Ministry of Finance. The board of directors is
nominated by the president of the republic and approved by the Federal
Senate.
However, dismissal can be effected by the president himself.
4. Banks are examined at
least once every 36 months. If an institution is high-risk,
continuous supervision is carried out.
5. There are two categories
for rating banks: normal and watch list. A new system is
being implemented as follows:
Banking Classifications
Category
Definition
Criteria *
Normal Risk
Normal situation
OWC>0 and <5% of ANW;
Potential Risk
Institutions that
delayed delivery of
present
accountable documents;
accountable or
failures and irregularities
operational failures,
but with no risk to depositors
Effective Risk
Institutions that present
Deficiencies in minimum
risk to depositors at
capital requirements;
medium term due to
relevant losses;
deficiencies in capital,
concentrated loans;
operational failures, and/or
eficient controls;
control failures
administrative suit opened in
the last two years;
negative OWC
High Risk
Institutions that present
Deficiencies in minimum
risk to depositors at
capital requirements and
short term or have irregular
in ANW, based on risk-
operations and controls
weighted assets; very high
level of past due loans in
relation to ANW (>30%);
noncompliance with
commitments; mismatched
terms and operations
Difficult
Institutions that present
Negative ANW; possibility of
Recovery
high level of immediate risk to
immediate risk to
depositors
depositors; relevant and
systematic imbalance of
cash flows; difficulties of
economic and/or financial
nature
6. In grading banks, examiners use CAREL, a system
similar in structure but not
in concept to CAMEL. The
CAREL system employs the following variables:
Capital, Ativos (Assets),
Resultado (Earnings), Eficiencia Gerencial (Management
Efficiency) and Liquidez
(Liquidity). The CAREL system automatically assigns
the bank's rating and is
used as an additional tool by the supervisory team.
II. Consolidated Supervision
1. The Central Bank
of Brazil performs consolidated supervision through the use
of several instruments, including on-site examinations of foreign branches.
2 Prior consent is required
to open a bank outside Brazil. Brazilian financial
institutions
that seek to open a cross-border banking establishment must
present
the Central Bank with a declaration from the host country's banking
supervisor.
3 Prior consent from the
home country is required to open or close a foreign
banking establishment in Brazil.
4. With the objective of
achieving consolidated global supervision, Brazilian
financial institutions that seek to open a cross-border banking establishment
must present the Central Bank with a declaration from the host country's
banking
supervisor that grants the Central Bank of Brazil (as the home supervisor)
access
to information, data and documents related to operations and the branch's
books.
If the financial institution does not present this declaration, the Central
Bank will
deduct the amount of assets of the branch or subsidiary from the institution's
adjusted net worth. Since July 1, 1998, the Central Bank calculates operational
limits as 100% of the branch¹s assets.
III. Interest Rates
1. Basic interest rates on loans are determined by the Central Bank. However,
banks are completely free to define the spread for their operations.
2. Interest rates on deposits are determined by the Central Bank. Although
interest
rates are determined by the Central Bank, banks are free to define the
spread for
their operations.
IV. Deposit Insurance
1. Bank deposits are insured by a nonprofit organization, the Fundo Garantidor
de
Créditos (Fund for Guarantee of Credits). Insurance is offered by
participating
institutions that accept demand, savings and time deposits to a maximum
of
US$16,899.03, acceptances, real estate bills and mortgage bills.
2. Insurance is limited per depositor, for the sum of all deposits, to
a maximum
of US$16,899.03.
V. Trade Finance
1. Brazil has no legislated
definition of trade finance. Generally, these operations are
loans extended by banks to importers and exporters to provide necessary
funds to
buy and sell goods and services.
2. The risk incurred when
dealing with trade financeknown as export, import,
pre-export, working capital and capital goods finance, letters of credit,
acceptances
and bills of exchange (drafts)is borne by banks. When exports are financed
by the
Brazilian government in the anti Proex-Export Finance Program, both banks
and
the government bear the risk. In cases of export, import and capital de
giro
financed by banks, only banks assume the risk.
3. Brazil has no specific
legislation to deal with cases of bank liquidations. Nevertheless,
trade finance is regulated by the Brazilian Monetary Authority, taking
into account
international agreements, conventions and codes.
4. Each case of bank liquidations
receives special treatment established by the monetary
authority, which follows the international criteria of the International
Chamber of
Commerce. The trade finance committee of the Florida International Bankers
Association refers readers to ³LBIN.9.450, medida provisoria,²
which addresses
issues related to liquidations and trade finance.
VI. Capital Adequacy
1. The minimum capital and
net worth required for a banking institution to open is:
R$9,345,739 or US$7,896,695 (US$1=R$1.1835 as of September 23, 1998) for
commercial banks or multiple operation banks authorized to operate in commercial
activities; R$8,010,633 or US$6,768,596 for investment banks, development
banks,
savings and loan banks or multiple operation banks authorized to operate
investment,
development, and savings and loan activities; R$4,005,317 or US$3,384,298
for
consumer finance companies and leasing companies or multiple operation
banks
authorized to operate consumer finance and leasing activities; R$3,867,610
or
US$3,267,943 for mortgage companies; R$801,063 or US$676,859 for securities
brokers and securities dealers authorized to operate any of the following:
mutual
fund administration, investment company administration, securities repurchase
commitment or firm commitment underwriting, margin account operations and/or
swaps; and R$267,021 or US$225,620 for other securities brokers and dealer
companies and foreign exchange broker companies.
An additional amount, corresponding to R$4,005,316.58 or US$3,384,298,
is required for any financial institution authorized to operate foreign
exchange
transactions in a free rate marketplace. An additional amount, corresponding
to the sum of the following items, is required for any financial institu-
tion with
branches, agencies, representative offices or subsidiaries, directly or
indirectly
controlled in foreign countries:
a)200%
of the minimum capital or net worth is required for
commercial bank. This corresponds to R$18,691,478 or US$15,793,390.
b)
30% of the minimum capital or net worth is required for any financial
institution with the minimum structure (head office and nine agencies or
branches) for each foreign facility.
c)
30% of the minimum capital or net worth is required of a commercial bank
for foreign facility.
2. The minimum capital required to operate a bank
follows the same criteria as above.
3. The Banco Central do Brasil has defined the weighting
factor for each asset of the
COSIF standard chart of
accountsa uniform chart of accounts for all types of
financial institutionsapplicable
to all institutions. The principal items and risk factors
are as follows:
Category
Percentage
Zero risk (1)
0%
Reduced risk (2) 20%
Reduced risk (3) 50%
Normal risk (4) 100%
(1) Cash on hand; deposits in local or foreign currency
at Banco Central do Brasil;
federal government
or affiliated companies¹ securities; and deposits and recoverable
prepaid taxes.
(2) Demand deposits; gold; deposits and credit in
foreign currency; checks and other
papers in clearing
accounts.
(3) States, municipal and federal companies¹
securities, including those issued abroad;
interbank deposits
and securities; foreign countries¹ securities; term deposits abroad;
regular housing
loans; operations and advances on foreign exchange and gold other
than import
and export operations; receivables from stock, future exchanges and
over-the-counter
clearing houses; confirmed export letters; and extended loans whose
funding has
the same basis (e.g. interest rate, factor of monetary correction).
(4) Stocks, debentures and commodities papers; securities
of companies in irregular
status; securities
clearing accounts; certificates and securities accepted as privatization
currency; loans
and lease operations; guarantees honored; export and import exchange
operations;
other receivables; doubtful debts; other assets; tax credits; permanent
assets less
investments in financial institutions in Brazil or abroad; and commitments
and risks on
import letters and guarantees.
VII. Asset Quality
1. Currently, loans are
classified according to the following three categories: normal,
past due and in liquidation. This system will change by the end of 1998
to the
following: normal risk, potential risk, effective risk, high risk and unrecoverable
loans. Loan classification will be redefined when the new system is implemented.
2. The minimum reserve requirement
for advances to depositors (excluding advances
on trade finance, real estate mortgage and rural loans) is zero percent.
Note that
from October 20, 1994 to December 25, 1996 the minimum reserve requirement
was 15%. Nevertheless, any operation that results directly or indirectly
in the
extension of credit of any type previously specified as a basis for the
calculation
of other minimum reserve requirements requires a deposit at the Central
Bank
corresponding to 15% of the amount of operations. The formula for calculation
is
the weekly average of daily balances of those operations, including accrued
interest.
Furthermore, the following minimum provision requirements on bank assets
are
imposed:
TYPE/SITUATION OF OPERATION GUARANTEES
PROVISION REQUIREMENT
Credit operations and other past-due credits
no
After 60 days
Credit operations and other past-due credits
partial
After 60 days
After 180 days
Credit operations and other past-due credits
enough
After 60 days
After 360 days
Advances to depositors
-
After 60 days
Advances on foreign exchange contracts
-
After 20 days doc.
delivery or 30-day
period foreseen for
liquidation
Financing/loans for security operations
no
After 30 days
Operations in the name of companies in
bankruptcy or extrajudicial liquidation
-
Any time
3. The legal lending limit to any individual customer is 25% of adjusted
net worth, including
underwriting and holdings of debt securities, except
federal government securities.
4. The investment portfolio is not categorized according to criteria
such as hold-to-maturity,
available-for-sale, or trade portfolio. All investment
portfolios, except gold and swap
contracts, receivables and payables, must be categorized
at historical cost less an
allowance to reduce securities from historical cost
to market value, when the latter
is smaller.
5. The investment portfolio must be measured against the market value
at least monthly,
but only when historical cost is lower than market
value, except for gold and swap
contracts, receivables and payables.
6. The profit and loss statement is affected as follows:
Realized and unrealized gains or losses are included
in the income statement
from continuing operations for gold.
Unrealized gains or losses are included in contingency
accounts for swap contracts,
receivables and payables.
Impairment must be written down to the fair value
and the write-down must be included
in income as counterparty of the allowance disclosed
for the remaining investment
portfolio.
VIII. Liabilities
1. The minimum reserve requirements on bank liabilities are as follows:
Account
Rate
Demand deposit accounts, deposits under previous advice accounts,
foreign client deposit accounts, undertaken deposits, deposits in guarantee
75%
Third-party values in transit, collected taxes, official checks, realized
collateral, assumption of liability contracts, deposits based on judges'
orders 60%
Advances on foreign exchange contracts-exports, received advances-
foreign exchange operations/imports/future settlement, received
advances-foreign exchange financial contracts/ future settlement,
automatically renewable time deposits. Any operation that results,
directly or indirectly, in borrowings of any nature, not previously
specified
as the basis for calculation of other minimum reserve requirements
30%
Time deposits, acceptances, securities issued based on pledged
debentures, debt securities
20%
Foreign currency purchase payables (less advances on foreign
exchange contracts-exports), saving accounts
15%
Assumption of liability contracts, any operation that results, directly
or indirectly, in borrowings of any nature not previously specified
as
basis for calculation of other minimum reserve requirements
0%
Minimum reserve requirements for demand deposit accounts, deposits under
previous
advice accounts,third party values in transit, received taxes, official
checks, realized
collateral, and assumption of liability contracts are calculated as
follows:
- Institutions from Group A: the weekly average of daily balances of those operations, calculated from Thursday to Wednesday, including accrued interest receivables, must be deposited by the next Tuesday and maintained until the next Monday.
- Institutions from Group B: the weekly average of daily balances of those operations, calculated from Monday to Friday, including the accrued interest receivables, must be deposited on the next Friday and maintained until the next Thursday
The minimum reserve requirement for deposits based on judges' orders must
be calculated using the balance at the end of each month and deposited on
the 15th of the next month.The minimum reserve requirement for remaining operations must be calculated
using
the weekly average of those operations' daily balances, calculated
from Monday to Friday, including accrued interest receivables, and must be deposited on the
next Friday and maintained until the next Thursday.
2. Brazilian banks can offer deposits such as demand deposit accounts,
time deposit
accounts, deposits under previous advice accounts,
and foreign client deposit accounts
only in local currency. The minimum term for deposit
accounts and deposits under
previous advice is 30 days. However, when the yield
of these operations is contracted
using the Referral Rate (Tax Referential) or a float
rate, the minimum term is four months.
Only Brazilian banks authorized to operate in foreign
exchange can offer deposit
relationships in foreign currencies for embassies,
foreign representative offices,
international organizations and foreign cargo air
carriers.
3. The only limit for interbank deposits is that the amount of deposits
taken by the
depository financial institution which mature in
less than 30 days do not exceed:
- 250% of the value of the adjusted net worth, for multiple operation, commercial, investment, savings, savings and loan banks; savings and loan associations; and consumer finance companies.
- 100% of the value of adjusted net worth for development banks.
such as broker deposits and affiliate deposits.