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Banking

The opportunities of privatization

The banks party through the crisis


European banks including HSBC, ABN Amro and Santander have picked off some mid-size Brazilian banks in recent years. But the biggest opportunities to buy into the Brazilian banking market are yet to come. State-owned banks account for well over half of deposits taken in Brazil and some will be sold over the next couple of years. In particular, the banks owned by each of Brazil's states offer an attractive opportunity to gain a deep regional retail presence. One of them, Banespa - now incidentally owned by the central government - is the next on the block. Banespa built up a large balance sheet by lending to its owner, the state of São Paulo, and by using bonds issued by the state as collateral for its funding. But as doubts grew about the state government's ability to repay its debt, Banespa hit a funding crisis. The central government was forced to intervene in 1994. The bank was bailed out by the central bank and passed into federal government hands.

In 1997 the state of São Paulo reached an agreement with the federal government under which the central government agreed to take on much of the state's debts.


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