First did not understand and then just refused to believe , when Marcos told me what was the rate of interest -for retail Public for Loan products in Brazil, well the publicly diplayed rate on the Central Banks website was indeed 48% per annum(COMPOUNDED)! (that was an average and meant only for people who had reasonable credit standing (or of course knew the Manager so any guess on what the active 'private' lending rate would be?).
Was further shocked to know that 'foreign banks' on some of their asset products like creditcards go right upto 12% (Not annum PER MONTH)
Decided to check their Deposit rates well whats reffered to as a Selic rate was about 8.75 % (thats per year) well that should make the Brazilian Banks the most profitable financial institution' anywhere in the Universe(*- Refer Foot note).
Really wanted to know more on this just dumped my Macro Pre Reading and did a half baked google re - search, hit upon the fact that the unusually high cost of financial intermediation in Brazil, as measured by the reported difference between bank lending and deposit interest rates is in fact due to levels of Intermediation and 'multiplier tax effect' on these Intermediates.
Brazil is an international outlier in terms of published interest spreads—it is one of only four countries in the world that reports average spreads above 30 percentage(30 x 100 = 3000 Basis points). The phenomenon of high interest rate margins has had a long history in Brazil, and a stubborn one at that. While Brazil is not alone in having had very high inflation in the past and having successfully reduced it to single-digits, it is rather unique in not having achieved a reduction in interest spreads to moderate levels, as other countries with hyperinflation histories have managed to do. This is despite an admittedly impressive improvement in fiscal and monetary performance over the past years. The high level and persistency of intermediation spreads has become an important source of concern for Brazilian policy makers and researchers, with good reason!
My question is not high spreads a much more than a nuisance to the conduct of business. They would mean high,volatile&lending rates, leading to a higher cost of capital, reduced investment, and a bias towards short-term high-risk investments, away from long-maturing investments with higher societal returns. Moreover, high banking spreads can disproportionately hurt small and medium enterprises and encourage informality.
With the Olympics ahead at Rio I definitely intend to watch this space meanwhile just close your eyes and Invest in equity stocks of Brazilian Banks and Marcos check which of them are going to be hiring you ASAP(also check if they Hire Indians tech job,it back office anything just check if they do!)! Afterall Executives of these Banks need to be paid S#$t load of money to continue this ...and meanwhile I just hope none of my Indian Bankers ever bump either onto this info or Marcos!
V
P.S: (* Foot note Why I say Universe -As Paul Krugman' interviews given as a part of our pre readings points out, one of the central points made in the IMF World Economic Outlook was that recessions caused by financial crises tend to get resolved on the back of export-lead booms, with countries normally emerging from the crisis with a positive trade balance of over 3 percent of GDP. The reason for this is simple, since consumers are so laden-down with debt from the boom period, they are naturally more obsessed with saving than borrowing during the initial crisis aftermath. So much then for the typical crisis, and the typical exit. But musing on this point lead Krugman to an additional, rather disturbing, conclusion: since the present financial crisis is truly global in its reach, the habitual exit route to recovery will only work after we are able to identify another planet to send all those exports to (shades of Startrek) SPOCK Can you check where we could send this iPhone or Brazilian Sugar To ?
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