GRI 102-14

Following one of the greatest recessions in our history, 2018 was the second year of a sluggish rebound in economic growth. GDP increased by only 1.1%; the investment rate of 15.8% remained very low; and the labor market, although having reported a reduction of unemployment, also showed a slow recovery.

Following one of the greatest recessions in our history, 2018 was the second year of a sluggish rebound in economic growth. GDP increased by only 1.1%; the investment rate of 15.8% remained very low; and the labor market, although having reported a reduction of unemployment, also showed a slow recovery.

After a two-year shrinkage, the balance of credit transactions expanded again in 2018, showing 5.5% growth in the year, especially in loans to households, which rose by 8.5%

Lower interest rates and bank spreads led to a reduction in debts, a fall in delinquency, and the consequent improvement of portfolios and credit expansion. From October 2016, when the current cycle of interest rates reduction began, until December 2018, the Selic base rate has fallen by 7.75 percentage points, and bank interest rates were even lower for loans directly affected by the Selic rate, such as unrestricted consumer credit, in which the average interest rate dropped by 25.4 percentage points, while loans to legal entities declined by 11.5 percentage points.

In the external sector, the Country had a favorable performance, with a high trade surplus resulting from the growth in exports and imports. The current account deficit remained well below levels considered sustainable. Our external financing is comfortable and reliable, benefiting from significant flows of foreign direct investment. Our international reserves reached a high level, equivalent to almost 20% of the GDP. The exchange rate and country risk measured by the Credit Default Swap (CDS), despite high volatility during the year, showed strong performance in the closing months of the year.

Banks maintain high capital and liquidity bases, which have contributed to the economy safely traversing internal instabilities. Unlike in other countries, our banking sector inspires security and peace of mind, rather than concern.

For Brazil to grow faster it must eliminate fiscal weaknesses and increase economic productivity growth, which will require greater trade openness and microeconomic reforms on several fronts and sectors.

Facilitating lending at lower interest rates is a part of this process. The role of banks is to finance production, consumption and investment. Lenders want to reach the largest number of people and businesses, increase turnover and reduce risks. The lower the interest rates, the more people and companies can use credit.

A faster reduction in interest rates in Brazil requires the simultaneous reduction of financial intermediation costs, which are higher here than in other countries, and the fostering of greater competition in the banking sector to allow these cost reductions to be passed on to clients.

FEBRABAN and its member banks are 100% in favor of more competition and incentives to free enterprise. They will support any and all non-discriminatory measures aimed at increasing competition and efficiency in the banking sector.

At the same time, we need to reduce the costs of financial intermediation, which also favors competition, as it lowers entry barriers in the credit market. The costs associated with delinquency, legal insecurity about recovering guarantees, taxation, regulation and operational costs are very high in Brazil and higher than in other countries relevant for comparison purposes. The majority of these costs stem from laws, regulations and institutional factors and are detrimental to both current market participants and those wishing to enter as new competitors.

To address this problem, FEBRABAN has prepared a proposal to be submitted to the government, the Congress, the Judiciary and society, suggesting measures that will help banks further reduce domestic interests and spreads here. This proposal can be found in the book “How to lower interest rates in Brazil” (Como fazer os juros serem mais baixos no Brasil), published in December 2018, so that those interested and aware of the problems that lead to higher costs can collaborate with suggestions to reduce them.

The book also contains our diagnosis of the situation. The suggestions consist of solid and feasible measures, some of them already presented by congressmen and experts to both Congress and the Executive branch.

We have also launched a media campaign on television, radio, and in newspapers and magazines to make the public aware of our interest in reducing interest rates and to foster debate on the subject.

Our intention with this book is not to have the final word on this topic, but rather stimulate debate. We are as willing to talk as we are to listen. What we offer with this book is a technical and non-voluntarist contribution to tackling the problem of high interest rates.

Among other FEBRABAN's initiatives in 2018, worthy of note is the agreement to settle claims arising from the Summer, Bresser and Collor II Plans.

The agreement may bring important benefits to society, the judiciary, savers and banks.

The settlement of a litigation of such nature and complexity shows that mediation and conciliation are effective mechanisms to settle disputes, as an alternative to judicial litigations.

Another important social benefit of this agreement is its contribution to maintaining the healthiness of the banking system, which could be adversely affected in case the claims were inappropriately resolved.

The agreement also complied with the prerogatives of individual rights, providing a solution to hundreds of thousands of savers who, for a decade or more, have waited for an answer.

In 2018, FEBRABAN made available the internet platform that allows these savers, through their lawyers, to initiate the adherence process and submit proof of claim to receive the amounts resulting from the negotiations with consumer protection entities.

Adherence may occur within two years from the validation of the agreement by the Federal Supreme court, leading to the termination, by agreement, of the legal proceedings.

With these payments, we turn a page and contribute to consolidating negotiation as an instrument for resolving consumer-related conflicts.

The banking sector is continually improving its processes and products. In 2018, we made solid investments in the New Collection Platform to record billions of payment slips issued throughout Brazil with the data required by the Central Bank, such as Individual Taxpayer ID Number (CPF), in addition to increasing the speed of response and security of the transactions made using these documents. The new platform, which processed 12.9 billion transactions, required a technological leap from banks and three years of development involving 2,500 business and IT professionals. By 2019, the system should process approximately 6.6 billion payment slips, with a processing response time of only one second for 99.88% of these documents. This platform, which allows overdue payment slips to be paid in any bank, has introduced greater security and should prevent at least R$450 million in fraud.

We continue to invest heavily in the convenience of internet and mobile banking, which already account for most banking transactions. To ensure customer security and convenience, a considerable part of the banks’ revenue was allocated to expenses and investments. In IT and automation alone, the expenditures of the banking sector reach, on average, R$20 billion per year.

In 2018, bank self-regulation completed its 10th year, a system that has raised the attention given to consumers beyond what the laws and regulations require. We have created responsible credit rules for the voluntary renegotiation of debts, aiming to provide agreements with greater transparency while assisting overdraft users who lose control of their finances. These are just a few topics covered by the self-regulation.

The customer service units and ombudsmen of the five largest banks deal with an average of 3.3 million inquiries per month, 93% of which are settled in less than three days. Complaints to Procon (the consumer protection entity) against banks have dropped by nearly 30% over the last two years, confirming this efficiency.

Despite the progress, our Country has major challenges ahead. The acceleration of economic growth depends on fulfilling the structural reform agenda. We need to increase the productivity growth rate, the main driver of economic growth.

To increase productivity growth, we need to increase our investment rate, raising the capital stock per worker. Investment is also the main channel for innovation, introducing new technologies and production methods, which contribute to sustainable development.

The sustainable expansion of investment, without generating external imbalances and inflationary pressures, calls for a higher domestic savings rate, which requires eliminating the government negative savings rate, reducing public spending, changing its composition, and increasing its efficiency.

And, since we are not alone in the world, we need to improve all these variables – productivity, investment, innovation, domestic savings, composition, size and efficiency of public spending – faster or at least as fast as our international competitors.

Therefore, it is necessary to foster greater competition in our various domestic markets and increase the openness and international integration of our economy, since it is competition that forces us to improve while trying to close the gap with the international averages of these key variables.

FEBRABAN and its members reaffirm their commitment to contributing to accelerating Brazil’s sustainable development.

Murilo Portugal