Abstract
In mid-September we raised our 2008 real GDP growth forecast for Brazil to
5.2% from 4.7% on the back
of higher-than-expected Q208 economic growth,
which came in at 6.1% year-on-year (y-o-y). With
growth at 6.0% y-o-y
during the first six months of 2008, we believe that robust domestic demand
–
primarily household consumption – fuelled by rapid private
sector credit growth, will keep economic
growth this year above the 5.0%
mark. However, the rapid rise in interest rates seen in recent months
along with slowing demand for Brazil’s commodities point to an economic
slowdown in 2009. Indeed,
we have already revised down our growth forecast
for 2009 to 4.0%, from 4.7%, earlier in September.
That said, we now feel
that liquidity conditions in Brazil will be even tighter than initially
assumed as in
addition to rapidly rising interest rates, drying up
liquidity on international money markets will further
affect lending in
the Brazilian financial system going forward. This in turn will rest on
overall
consumption and the economy, prompting us to revise down our 2009
real GDP growth forecast to 3.5%.
We now expect household consumption
growth to come in at 3.6%, down from a previous projection of
4.8% earlier
this year. By the same token, we now see gross fixed capital formation growth
declining to
6.5% in 2009, as opposed to our earlier forecast of 7.6%.
This report is being written at a time when the global financial crisis
– which arose as a result of the
evaporation of inter-bank liquidity
– has moved into a new phase. Stock market participants appear,
reasonably, to have taken the view that the policy responses taken by
governments, central banks and
multi-lateral institutions will be
sufficient to prevent a total collapse of the global financial system.
Instead, stock market participants are focusing on the impact of a near-global
recession on the earnings of
non-financial companies.
The number and
size of stand-by facilities agreed by the IMF since early mid-October supports
our view
that, of the emerging markets whose commercial banking sectors
are surveyed by BMI, the countries of
Central and Eastern Europe are those
whose economies are most at risk of suffering adverse affects as a
result
of the global financial crisis. This is partly because the macroeconomic
imbalances are relatively
severe and partly because the Central and
Eastern European countries are more directly affected by the
brutal
recession that is unfolding in wealthier member states of the European
Union.
As yet it has not been possible to collate hard numbers as most of
the countries whose commercial
banking sectors are surveyed by BMI clearly
quantify the impact of the global financial crisis on the
banks. In a
later section that highlights the changes that we are making to this report,
we again include a
lengthy essay which attempts to identify the key
issues. In essence, in the emerging markets – and, indeed,
the
developed countries – of the Asia-Pacific, commercial banks appear to be
well placed to deal with the
crisis. The same is broadly true of
commercial banks in the various countries of the Middle East and North
Africa. In Latin America, Chile, Brazil, Mexico and Colombia appear better
placed than Argentina,
Venezuela, Bolivia and Ecuador. South
Africa’s situation appears to have much in common with that of
Brazil. In contrast, Nigeria faces some of the same challenges that confront
Venezuela. The positions of
most countries in Central and Eastern Europe,
however, are alarming.
From Q209 we will include data that pertains to
late 2008 and will extend forecasts out to 2013. We will
also incorporate
much greater discussion of the various protagonists in each country’s
commercial
banking sector and a number of new features. We believe that
the figures we compiled in mid-2008
provide insights as to how the various
commercial banking sectors will fare in the current, extremely
uncertain,
environment. We have, therefore, left them essentially unchanged.
The
figures on the tables above provide a snapshot of the banking sector in Brazil
prior to the onset of the
global financial crisis. To place these in
context, it may be useful to bear in mind certain aspects of the 59
countries whose banking sectors are currently surveyed by BMI. Across this
sample, the median growth in
assets in local currency terms was 21.3% (in
Colombia). The median loan growth was 21.6% (in India).
The median growth
in deposits was 17.9% (in Brazil).
On their own, the ratios of loans to
deposits, assets and GDP mean little. However, they can provide useful
hints when combined with other data. Across the 59 countries, the median
loan/deposit ratio is 92.3% (in
Greece). The median loan/asset ratio is
56.0% (in Poland). The median loan/GDP ratio was 63.9% in
India.
Since
Q108 we have calculated, on a consistent basis, a Commercial Bank Business
Environment Rating
(CBBER) for each of the 59 countries surveyed. The
CBBER includes an assessment of the limits of
potential returns. It does
this by taking into account the size, growth potential and bancassurance
potential
of the banking sector, as well as aspects of the economy in
2007. The CBBER also depends on an
assessment of the risks to the
realisation of potential returns. This reflects BMI’s assessments of
overall
country risk, together with the regulatory and competitive
environment.
Brazil’s overall CBBER is 67.4. Within the limits to
potential returns, the banking elements rate
considerably more highly than
the country elements – with scores of 80.0 and 50.4 respectively.
Within
the risks to the realisation of potential returns, the banking
elements and the country elements are also
more highly weighted –
with respective scores of 70.0 and 62.4.
Brazil’s is the highest
CBBER of any Latin American country surveyed by BMI, although it is not
dramatically higher than that of Mexico. Brazil’s CBBER is improved by
the large absolute size of its
banking sector and the absolute growth that
we envisage during the forecast period. Interestingly, Brazil’s
country elements are significantly lower than those of Mexico.
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