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.