Banks: the most profitable sector in Brazil

The profitability of the banking sector is the highest in the Brazilian economy when compared to other sectors. According to a study by the consulting firm Economatica, which evaluated publicly traded companies, the banking sector, comprising 21 institutions, had the highest consolidated profit in the first quarter of 2018, with R$ 17,59 billion. This represents a growth of 14,18% compared to the same period in 2017. The survey was based on standardized financial statements submitted to the CVM (Brazilian Securities and Exchange Commission).

These figures are important to ensure that banks operating in Brazil, even during one of the worst recessions in Brazilian history, have a much greater financial capacity than other economic sectors in the country. The problem, in fact, lies in how this profit is generated. Banks are not increasing the supply of credit; on the contrary, they are reducing loans. With their main activity declining, banks are increasing their profits during this period by reducing physical infrastructure (almost 600 branches were closed in 12 months), reducing jobs (more than 13 jobs cut in 12 months), and disproportionately increasing the fees charged to customers. In 2017, for example, inflation in banking services was three times higher than the country's overall inflation.

This way of operating makes banks an obstacle to the recovery of the Brazilian economy. The factors that make the domestic market grow are basically the increase in the wage bill and the supply of credit in the economy. And it is in this last case that banks come into play. Credit acts as a kind of lever for the economy. However, the cost of credit in Brazil is extremely high, which ends up hindering the productive impulse of economic agents, who cannot commit their budgets to paying interest, the highest in the world. In addition, we have a still insufficient supply of credit, which represents 46% of GDP, and which reached 54% of GDP at the end of 2015.

What allows this type of action is the fact that since the 90s there has been a huge concentration in the banking sector, with a series of mergers and acquisitions that have only increased the market power of five large banks that today concentrate more than 87% of the total operations in the country and, as a result, charge extremely high interest rates and fees, unparalleled anywhere else in the world.

In the current model, the wealth generated in Brazilian banks is increasingly concentrated in the hands of a few shareholders, while bank workers work in increasingly worse conditions with a significant increase in work intensity due to layoffs; and customers pay more and more without having enough branches and bank employees for better service.

To help Brazil grow, the banking sector needs to start giving back to society by practicing reasonable interest rates, increasing the supply of credit, improving service to the population through hiring, and contributing to improving labor relations and the wage structure in a country that still ranks among the top in the world for income inequality.