BMI's Executive Summary

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From Q108 we will be calculating the Commercial Banking Business Environment Rating (CBBER) for each of the countries surveyed by BMI. This will permit a more systematic and comprehensive comparison of the conditions within the banking industries of the various countries than was possible in the past. For each country, it will also facilitate a comparison of the conditions within the banking sector and conditions prevailing in other sectors.

Brazil's overall CBBER is 66.7. The equivalent figures for the US and the eurozone are 84.8 and 81.4, respectively. Brazil's CBBER is higher than that of any other country in Latin America. It is also higher than that of any of the many countries in Central and Eastern Europe that are surveyed by BMI, except Greece.

Within the CBBER, the most important aspect is the banking market element of the limits of potential returns. This element accounts for 42% of the overall CBBER. Brazil's rating for this element (80.0) is higher than the overall CBBER and higher than the country element of the limits of potential returns (47.9). What is widely known is that Brazil has a fairly sophisticated commercial banking sector. What is not so well known is just how large are the total assets of Brazil's banking sector relative to those of other countries: moreover, the absolute growth in total assets and client loans during the 2007-2012 forecast period will likely be exceeded in only a few of the developing countries surveyed by BMI.

Nevertheless, the CBBER highlights the factors that are holding back Brazil's banking sector. One is the relatively low level of per-capita GDP (which is exacerbated by the uneven distribution of income). Another is bureaucracy. However, the most important constraint is the volatility of the economy over the long-term: this is, to be fair to the Brazilian authorities, largely the result of external risks and challenges.

The Brazilian economy recorded its 21st consecutive quarter of uninterrupted economic expansion in Q207, posting robust out-turns across most sectors of the economy. Real GDP growth came in at 5.4% year-on-year (y-o-y), and 0.8% quarter-on-quarter (q-o-q) in Q207, which is evidence of a solid economic expansion. Key to the current growth cycle has been an expansionary monetary policy, which has provided a large impetus to private consumption and fixed capital formation, two main drivers of growth. Given that Brazil's macroeconomic fundamentals have significantly improved, we believe that the economy is poised to embark on a longer-term growth trajectory that will see it expand by approximately 4-5% on an annual basis throughout the forecast period to 2012.