Brazilian bank spreads up 60% in two years

Tuesday, October 18, 2016

Brazil's central bank has asked banks to reduce the spreads between the rates they charge on loans and those they pay to raise funds.

The banking spread has risen 15.4 percentage points in less than two years, according to central bank data cited by local daily Estado de São Paulo. In December 2014, banks raised funds at an average rate of 12% per year and were lending at 37.3% interest, while in August this year, the cost of funding had barely changed, standing at 12.3% per year, but interest on loans had climbed to 53%.

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The hike in loan rates increased the spread to 40.7 percentage points from 25.3 points, up 60%. The change came despite Brazil's key rate, known as the Selic, having risen much less in the same period, to 14.25% per year from 11.75%.

According to the central bank's director of institutional relations, Isaac Sidney, banks and clients need a new policy that favors long-term relationships.

"The range of bank fees and their amounts, often excessive, need to be replaced by sustainable long-term relationships," he was quoted as saying by the newspaper.

Ricardo Rocha, a professor with the advanced program in finance at Insper, told Estado de São Paulo that the spread had risen because banks "decided to defend themselves" because of Brazil's economic crisis.

"With the Selic high and in an environment of crisis, they saw that the risk of granting credit was higher," Rocha said. "Nobody wants to give money to the worst borrowers, so everyone raises their rates."