Brazilian Banks Need More Competition to End Cartels, Says Economy Minister

By Contributing Reporter

RIO DE JANEIRO, BRAZIL – Brazilian banks’ profits are huge to the point of being “excessive”, Economy Minister Paulo Guedes said on Tuesday, adding that the country needs an injection of competition to end what he called the cartels that dominate many of its major business sectors.

In testimony before the federal Chamber’s Finance and Taxation Committee, Guedes also said President Jair Bolsonaro may not always have shared his privatization instincts but now recognizes the merits in selling off state assets to the private sector.

And in fact, Brazil’s biggest banks seem to be cruising through the crisis as if nothing bad ever happened to the country. The country’s top four banks on the stock market – Itaú Unibanco, Banco do Brasil, Bradesco, and Santander – last year recorded combined profits of R$16.9 (US4.2) billion, the best results since 2015’s second quarter.

Even during the recession’s worst moments, these banks’ quarterly profits never came in below R$11.6 billion.

“Whatever situation the Brazilian economy may face, one thing seems certain. Banks will be making obscene profits,” wrote news outlet “The Brazilian Report” at the end of 2018.

Brazil’s antitrust agency Cade is also investigating four banks in Brazil for allegedly creating competition hurdles to digital banking newcomer Nubank.

That is certainly why the Brazilian Central Bank is moving ahead with a financial data-sharing framework, which is set to bring unprecedented transparency –- and competition –- to the country’s banking system.

The Central Bank has shown that it is serious about forcing competition in the country’s highly concentrated banking system, laying out plans for groundbreaking open banking regulation.

The new rules are said to force the country’s biggest five banks – which alone hold 80 percent of Brazilian deposits – to share customer data with third parties.

“Open banking provides a lot of transparency and the ability for consumers to compare services and prices,” said Larissa Arruy, partner at Brazilian law firm Mattos Filho.

The Central Bank will launch a public consultation on draft legislation later this year, with the aim of implementing the new rules in the second half of next year.

Proponents say that the transparency promised by open banking will be a victory for consumers, who will benefit from lower fees and better interest rates.

The changes are also likely to allow fintech startups and Brazil’s smaller banks to grow their market share, by making it easier for customers to switch providers.