The five largest banks accounted for 78% of the banking system's profits in 2021

The five largest banks accounted for 78% of the banking system’s profits in 2021

Of the R$132 billion of net income recorded in the banking system in 2021, 78% went to the five largest banks in the country – Itau, Bradesco, Santander, Caixa Economica Federal and Banco do Brasil.

According to data sent by the Central Bank upon request bindingThe five institutions combined generated net profits of R$103.5 billion last year. The total size of the system is in the Financial Stability Report issued by the Monetary Authority on August 9.

BC did not break down the separate figures for each of the banks in 2021, but a survey conducted by the report based on the financial statements of financial institutions showed that among the major private banks, Itaú had the highest accumulated net accounting profit last year, with a value of R$24.9 billion.

Bradesco, in turn, recorded R$21.9 billion in net accounting income in 2021, and Santander closed last year with R$14.988 billion in net income for the company.

Banco do Brasil reported that, from the company’s point of view, net income for 2021 was R$19.7 billion; Caixa recorded 17.2 billion Rls last year.

The total amount according to the balance sheet data is equivalent to R$ 98.8 billion. BC data contains adjustments made by the monetary authority to eliminate non-recurring events in the balance sheets of larger institutions.

Banking association says profits are back to pre-pandemic level

After that, Itao, Bradesco, Banco do Brasil and Santander said that Verapan (the Brazilian Confederation of Banks) will speak on behalf of the institutions. Caixa responded that he would not comment.

According to Vraban, the current level of earnings in the banking sector is back to pre-pandemic levels. “The profitability of the banking sector on average is in line with the reality of other sectors of the Brazilian economy,” he said.

Regarding focus, the entity stated that Brazil’s banking sector is “highly competitive and open to the entry of new competitors, both domestic and foreign” and that there are no regulatory barriers preventing entry for new participants.

“There is a lot of confusion between concentration and lack of competition. Banking, like other activities that require large amounts of capital, has a greater degree of concentration, especially in so-called retail banking. However, in the case of the Brazilian market the level of concentration is moderate,” he added. As the central bank itself acknowledges.”

According to the Financial Stability Report of British Columbia, the Brazilian financial system currently has 136 banking institutions, not including payment institutions.

The banking focus has already been criticized by Minister Paulo Guedes (Economy), who said in a video conference in May 2020, that “200 million packages” are being tapped by six banks.

Economist says dictatorship has encouraged banking focus

Economist Carla Bini, professor of MBA at FGV (Fundação Getulio Vargas), says the sector’s focus has historical roots in Brazil and began during the military dictatorship.

“There was an example that by focusing, you can make gains in scale and that can reduce the cost to the end borrower. And this idea has been implemented even after democratization,” he said.

In the past decades, the Proer (Program for Stimulating the Restructuring and Strengthening of the National Financial System), in the government of Fernando Henrique Cardoso (1995-2002), has contributed to the liquidation of state banks and the consolidation of institutions into focus. High investment with advances in technology has also contributed to centralization.

“Bank concentration occurs in other countries, but banking concentration in Brazil is an ineffective enrichment tool,” Benny said.

However, the specialist sees an effort by BC to change the scenario with the regulation of fintechs, the creation of open banking and the launch of open finance – a system that proposes expanding the sharing of personal, banking and financial data between institutions. , with the prior permission of the citizen.

Looking at the broader realm of the financial market, BC President Roberto Campos Neto said in May that with the rise of fintech companies in recent years, there has been a decline in the focus index.

“We reduced the banking focus from 81.2% in 2018 to 77.6% in 2020. The 2022 number should be close to 71%,” Campos Neto said at a public hearing on the House Consumer Protection Committee.

The British Columbia Financial Stability Report also showed that R$132 billion was 49% higher than the net income that banks recorded in 2020, in a period affected by the pandemic, and 10% higher than that observed in 2019.

Growth in interest margin (the base rate jumped from 2% to 9.25% annually in 2021), lower expenses with provisions and efficiency gains are the three factors that explain the score that organizations got last year, according to the document.

For 2022, BC notes that bank profits tend to grow at a slower pace, although the profitability of the system should remain flexible.

“The 2022 scenario is weak economic activity, lower credit growth, normalization of defaults, and higher financing and operating costs. These elements represent obstacles to the development of profitability in the future,” he said.

The report also showed that even as Pix gained greater importance in the financial system over the past year, banks’ revenue from services grew by 10% compared to 2021 and 2020, driven by improved economic activity.

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