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Brazil: The banks party through the crisis

All you need to make good money in Brazil is a banking licence, a few retail outlets and faith that your biggest customer will keep up payments. You don't need to worry too much about credit analysis, operating efficiency or branding. Risk-management skills may help you make even more money, but if you don't have them, relax, you should still come out ahead. Michael Peterson reports

The opportunities of privatization

Don't worry about risk and efficiency: that seems to be the lesson Brazil's banking sector can draw from its experience in recent months. The source of easy living is the government's insatiable appetite for borrowing. And in January this year that appetite became still more voracious as the country's debt - much of it denominated in dollars or dollar-linked - ballooned in local-currency terms following the devaluation of the real.

Brazil's 50 largest banks made an annualized return on equity of 43.7% in the first quarter of this year. That, admittedly, was exceptional. The figure for 1998 as a whole was 11.4% - about the level of returns the sector has enjoyed for the past four years. Most of the banks' profits - in normal years at least - are made by lending to the government. This year the banks have also had a one-off bonus because they also did well from the devaluation itself.

The emerging-markets crisis of the past two years has made it more difficult for Brazil to borrow from banks abroad. And this year access to decent terms on the international capital markets has become even more problematic for the government at a time when the fiscal deficit has remained high at close to 10% of GDP.