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Market Environment Analysis and Overview of Brazil

Part One
Foreign Trade

While the banking industry, like most others, is better off since the Real Plan went into effect than before, the short-term benefits are not as great. This is because banks tend to do better in periods of high inflation than they do under stable economy. For banks, high inflation generated income from "float" and also large spreads on money market operations. Banks became averse to lending during high inflation, especially as the better commercial risks moved to reduce leverage and stopped borrowing. Stabilization has brought considerable down-sizing, and banks resumed lending as one way to develop new income sources. Payment gateways are finding alternatives to income generated from float, including higher interest rates, higher volumes, and service charges. Some problems still occur as more than 70% of the Brazilians don't have a bank account - a remain from high inflation days when saving wasn't profitable. Another remain of the old days is the fact, that the main competitors for the banks are the stores, giving credit to the consumer with lower interest rates. Classification of financial Institutions by Activity The state or interstate development banks are regional financial institutions controlled by respective state governments, which grant medium or long term loans for fixed or working capital, according to the economic and social needs of the region of which they operate. The principal and activities of these entities are the on lending of loans and providing of loans for the financing of rural and industrial development schemes. Federal and state saving banks are financial institutions which undertake almost the same types as the commercial banks. They accept savings from individuals, by means of deposit in current accounts, and make loans. Commercial banks - They engage in both wholesale and retail banking and are the main source of short- and medium-term loans. In addition to making loans, they provide other financial services, such as accepting deposits, paying checks, issuing letters of credit, dealing in foreign exchange, cash management services, investment banking services and investment management.
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Investments banks- They specialize in medium- and long-term loans finance for the supply of capital and the investment of third party funds. Credit, finance and investments companies - They specialize in credit opening operations by acceptance of bills of exchange to finance purchases of goods and services by consumers or by final users. They include subsidiaries of large manufacturing or retail companies. Financiers charge higher rates than commercial banks. Securities dealership and brokers - They function as the securities dealers of the Brazilian financial conglomerates. Through the distribuidora, the other financial institutions in the group sell their financial paper to the market. International Banks The participation in Brazil's banking sector is presently frozen at levels set 40 years ago, but there is a tendency to liberalize the possibilities of foreign participation. Several foreign banks hold minority ownership positions in local banks. A few foreign banks also have local subsidiaries or branches. As examples Credit Commercial France-Brazil, ABN Amor Bank, Bank of Boston and Citibank have subsidiaries in Brazil. In addition many foreign banks have chosen to have representative offices, in the main business areas. For example Merit Bank has a representative office in S Paulo. o Representative offices can make foreign currency loans to Brazilian banks but according to Brazilian law they cannot pursue any banking activities other than putting potential Brazilian borrowers in touch with the foreign parent bank and act as a local representative. Financing Projects In order to obtain financing for projects, guarantees are needed because the cash flow usually isn't sufficient and additional guarantees are needed to hedge the country risk. Some possible sources of financing may include the following. Commercial Banks Finnish commercial banks as well as foreign banks offer for example services including Letter of credit confirmations, bank to bank guarantees, and other short- and medium-term trade finance services with a select number of Brazilian banks. On March 26 1997 the Central Bank of Brazil imposed provisions on import, regulating that only risks with maturities of a minimum 361 days or clear cash on delivery financing is approved when importing to Brazil. These provisions can, however, be seen as a considerable trade barrier, and thus not consistent with the GATT rules. Finnish Export Credit
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Finnish Export Credit had loans to Central and Latin America of up to USD 50 million in 1996. The financing was mainly focused on Brazil, Chile and Mexico. Because of the positive development of these countries new projects are going to be launched especially in the area of telecommunication, wood industry and energy.

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