Brazilian Banks Benefit from Nation’s Boom
Brazilian banks like PTG Pactual are reaping the rewards of Brazil’s economic boom. For a number of reasons, Brazilian banks are looking at a convergence of trends that make Brazil a solid, long term investment.
What is driving Brazil’s boom? Brazil is becoming a major energy producer. Offshore oil fields are only now starting to be exploited and will make Brazil a rival to OPEC for decades to come. Brazil has been selling ethanol from sugar cane, a more efficient source than corn and one whose usage does not cripple its beef production. Brazil is also enjoying a demographic surplus, a large and growing working age population while its birth rate drops toward developed nation rates. Brazil has almost two hundred million people, giving its businesses and banks a large domestic market. Brazil’s agricultural and mineral exports are trickling down into a population eager to increase its standard of living. Brazil’s economy reaps subtle benefits from its energy exports, since this fosters demand for its currency. Brazil’s inflation rate has hovered around 5% during the 2008 economic crisis until today, while developed nations flirt with deflation and some developing nations are seeing inflation spike. This makes Brazil economically stable in an area known for instability. Brazil may or may not have received some of the capital that has fled Venezuela under Hugo Chavez.
How have these trends benefited Brazil?
Brazil’s economy is maturing from an export based commodity economy to an industrial power house. This is driven in part by the industrial boom to support the oil and ethanol industry and partially by the demand for locally produced goods for an increasingly prosperous population. Brazil’s banks offer microcredit to many people to foster purchases on credit. They profit from millions of new customers coming into the banking system while Brazil’s low inflation rate eliminates the risk of high inflation erasing the profit margins.
Brazil’s markets are maturing. Brazil has seen the number of IPOs grow. Its economic stability and growing market have provided the financial capital for Brazilian companies and banks to raise capital without relying on American or European investors.
Brazil’s energy boom and food exports have given it strong, global connections. Brazilian banks now have connections to financial centers like New York, London and Hong Kong. Brazilian banks have now grown to the point of being institutional investors. For example, a group of investors poured $1.8 billion dollars into BTG Pactual. This is in addition to its 23.1 billion in assets.
South American trade treaties have made it easier for Brazilian banks to invest in surrounding nations like Peru and Columbia. Brazilian banks have been able to invest in other Latin American nations, helping them grow while preventing its export boom from increasing the inflation rate.