brazil and germany

8/12/2019 Brazil and Germany

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Banking Structures

Around the World

Brazil and Germany


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German Banking System

Features

German banks are typically universal

A universal bank provides a complete range

of commercial and investment bankingservices


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German Banking System

The broad umbrella of universal bankcan be divided into three categories onthe basis of ownership and legal form.

These categories are:commercial banking sector;

saving bank sector; and

credit co-operative sector

These three categories of universalbanks together account for roughly 80%of the volume of business in Germany.


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The Structure of German Banking

German Banking Sector

Commercial Saving Credit Co-op Other

Big Banks

Foreign Banks

Private Banks

Regional + Other

Local Savings

State Savings

Central Savings

Local Co-op

Regional Co-op

Fed. Clearing

Mortgage Banks

Banks w/Sp.Functions


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Commercial Banks in Germany

Commercial banks in Germany as a whole,

account for roughly 25% share in the total volume

of banking activity.

There are four different classes of banks undercommercial banks category:

The Big Banks

Regional and other commercial banks

Foreign banksPrivate banks


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The Big Banks

Deutsche Bank, Dresdner Bank, Commerzbankand their Berlin subsidiaries operate nationallythrough network of local branch offices.

Although these banks are major banks in term oftheir balance sheet volume, however, theirvolume is not as significant in terms of theirshare of the German banking sector.

If their interest in private business (such asmortgages) is included in the volume, then thecase may be different.


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Regional and other Commercial

Banks

These banks are all banks other than those big

banks.

These banks concentrates on providing universal

banking services in their particular regions, butsome maintain their system of branches which

had allowed them to operate on interregional or

national basis.

Two such banks with an extensive branchnetwork are the Bayerische Vereinsbank and the

Hypo-Bank.


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Foreign and Private Banks

Foreign banks in the German banking system have not

been significant

Foreign banks are legally allowed to offer the same

services which are allowed to domestic banks.

Private banks consist of limited partnership (sole

ownership is not allowed under German banking law)

Although private banker can conduct all banking

activities, they specialise in export finance, securities

trading, industrial finance, property management andhousing finance etc.


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Saving Bank Sector

Savings Bank Sector had the largest share in thedomestic volume of banking activity.

Saving banks were originally conceived as non-

profit making concerns

to serve relatively less well-off members of thecommunity;

to give credit on favourable terms to public

authorities;

to finance local investment in the region in whichthe saving bank was located

Thesebanks still follow these obligations but nowthey have become universal banks which compete

with the commercial banks for most forms of

banking services.


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Saving Bank Sector

There are three tiers within the saving

bank sector. These are:

Local savings banks

State saving banks

Central saving banks


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Local Saving Banks

These are municipal or district institutions

incorporated under public law as independent legal

entities.

Each state had its own Savings Bank Act, which

specifies the structure and organisation of the

saving banks in that state.

A local saving bank is usually permitted to operate

only in its own region and its investment in

securities and other assets are subject to

restrictions.


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State Savings Banks (Central Giro

Institutions)

Each state saving bank is incorporatedunder public law and is owned by itsrespective sate government and statesaving bank association

Works as clearing houses for their member localsavings banks.

They are state bankers in their respectivestates and can conduct their business on

interregional and international basis.The largest state saving bank is the

Westduetsche Landesbank Girozentrale, whichis roughly comparable to Commerzbank in terms

of balance sheet assets.


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Central Savings Bank

Deutsche Girozentrale (DGZ) serves as thecentral clearing bank for the saving banksystem and holds reserves for state

saving banks

Is similar to state saving banks in term ofbusiness it conducts, but it is smaller in

size than many of them.Although, both local saving banks and state

savings banks are universal banks, someactivities such as securities tradingunderwriting and international business are

more important.


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Credit Co-operative Sector

The credit cooperative originated simply as cooperative banks.

Provides credit to their members, but now have developed to

universal banks.

The organisation of the credit cooperative sector is similar to

that of the saving bank sector.

There are large numbers of local credit cooperatives and a

system of larger regional banks headed by a central clearing-

house institution.

There are three tiers within the credit cooperative sector.

These are:

Local cooperative banks

Regional central cooperative banks

Federal clearing house institutions


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Local and Regional Co-operative

Banks

Local cooperative banks The first tier of this sector comprises local banks

organised as cooperatives, whose members are localindividuals and businesses.

Members of the local credit cooperatives contributecapital.

Regional Central cooperative banks The local credit cooperative are headed by a second tier

consisting of regional central cooperative banks, whichare either stock corporations or registered cooperativesowned by the local credit cooperatives.


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Federal Clearing House

Institutions

Third tier consists of a federal clearing-

house institution, which is a stock

corporation owned by the regional creditcooperatives.


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Mortgage Banks

Among those banks in Germany, which provides a

specialised range of banking services rather than universal

services, the most important group consists of the mortgage

banks.

These banks are owned by public or private sectors.

The laws in Germany generally limits mortgage banks to

making long term mortgage loans and loans to public

authorities.

These banks finance through bonds and long term deposits.

Most private mortgage banks are usually owned bycommercial banks, which are interested to enter into this

market.


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Banks with Specialised Functions

The group of banks offering specialised banking

services comprises various public and private

institutions

Their share in total volume of banking business

in Germany has been in the range of 10-12%.

These banks provide loans finance such as:

export finance;

finance of projects in less developed countries;environmental programmes;

lending to small/medium sized German firms

These banks finance through government funds,

bank loans and other sources such as bond issues.


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BRAZIL


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A SOLID BANKING SYSTEM

Brazil has asolid bankingsystemandnationalbanks withbranchesthroughoutthe country


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All payment orders(funds transfer) arehandled electronically

and may be settled inreal-time with intraday

availability.


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Checks issued anywhere in

the country are cleared andsettled within 48 hours.

Web-based services havebecome common andBrazilian banks are leaders

in Internet banking.


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Key Facts

Since 2003, more than 8 million jobs have been created in Brazil and theunemployment rate has fallen from 12.1% to 6.5%. This has created a new section ofborrowers the lower-middle and working classes.

The total stock of mortgages in Brazil is less than 4% of GDP now, and the countryhas a housing deficit of 6-8 million units. Both factors are expected to drive growthin the mortgage lending segment of the banking industry.

Total credit in Brazils economy, comprising credit to both individuals and industry,has grown from 35.2% of GDP in 2007 to 46.4% of GDP, as of March 2011.

According to credit rating agency Serasa Experian, in May 2011, loan defaultsregistered the highest monthly increase since March 2010. Whats more, theyindicated a growth of 20.6% in defaults during the first five months of 2011.

Brazil is building a positive credit registry to help banks review the credit histories ofall borrowers and not just defaulters.


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Key Facts ( Contd.)


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Key Facts (Contd.)

The minimum Basel Ratio of the Brazilian banking system is set at 11 percent,

which 3 percent higher than what is suggested in the Basel Accord. Most

banks, in reality, operate much higher than this level (at over 17.5 percent) with

low leverage ratios (over six times the level of their capital holdings)

All banking limits and requirements are applied in consolidated terms which

means that so called toxic assets or special investment vehicles are put under

heavy scrutiny

All investment funds are weighted in line with their corresponding assets. This

is undertaken to ensure that leverage levels are reasonable and over-exposure

is kept to a minimum

Over the Counter (OTC) derivatives need to be registered with the Central Bank

(or face legal action)

The Brazilian Securities and Exchange Commission (Comisso de ValoresMobilirio) legally obliges all public companies to disclose all information with

regards to the financial instruments that are being used. In addition, full

sensibility' analyses are undertaken on a regular basis


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Key Facts (Contd.)

- The central bank has control over all non-financial subsidiaries of bankinginstitutions;

- Expected loss provisions are taken into consideration (not just actuallosses);

- Liquidity and market risks are monitored intensively by the Central Bank

on a daily basis;

- Bank reserves must cover all debt payments past;

- All lending above the value of $BRL 5,000 must be registered with theCentral Bank;

- Issue ratings are regularly undertaken;- Regulatory procedures are applied to all banks and are also regularlyupdated in line with financial innovations (approved by the Central Bank),international standards and conjuncture changes.


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Major Players

Among the top ten Brazilian banks in terms of total assets, three are

government-owned (Banco do Brasil, Caixa Economica Federal or

CEF, and the countrys development bank BNDES); five are domestic

non-government owned (Bradesco, Itau-Unibanco, Banco Santander

Brasil, Safra, and Votorantim); and two are foreign (HSBC and

Citibank). The top four publicly listed banks are Banco do Brasil, Itau-Unibanco, Bradesco, and Banco Santander Brasil.

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