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Brazilian banking: Caution, unprecedented forces at work

It’s 2020: welcome to the decade of low-cost Brazilian banking.


OK, that might still be an exaggeration, just as we begin the decade. But the signs are clearly pointing to an end to Brazil’s famously high-cost banking system, and sooner rather than later.

At the end of 2019, the Central Bank of Brazil made headlines when it announced a ceiling on the 'cheque especial' product – or overdrafts, in English. Financial institutions will no longer be able to charge more than 8% a month (for clients with negative balances above R$500).

This is the first time that the regulator in Brazil has announced any cap on interest rates.

However, despite this unprecedented move by the central bank, it still leaves room for a significant margin given that the country’s base rate was 4.5% at the end of 2018. 

And for those of you assuming that, by adopting so high an interest rate ceiling, this rule is targeted at the industry outliers – the payday loan companies living on the parasitic fringes of Brazilian’s population that, through no or bad credit history were forced to pay such exorbitant rates – well, you’d be wrong.

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