Banco do Brasil: Latin America’s biggest bank leads development charge

Walter Malieni Júnior, credit director at Banco do Brasil, has been living between São Paulo and Brasília for almost a year. He spends half his week in Brazil’s financial capital, and half in its political capital, 1,000km away. State-owned Banco do Brasil, the largest bank in Latin America, itself sits between the political and financial worlds. The bank has outperformed Brazil’s main equities index while leading the expansion of credit to consumers and companies, one of the government’s objectives.

Mr Malieni’s life of bifurcated residence began shortly after a management shake-up last year, which saw the bank become more aligned with the government’s pro-credit policies.

It lowered spreads on lending below private market rates and rapidly increased credit. Banco do Brasil is seen as less political in its management than previously, however, and the strategy was a financial success. Last year, it made R$10.15bn (US$5.87bn) in profits, the largest in Brazilian banking history.

Mr Malieni says the bank’s size can be used to help the country meet its infrastructure demands in a number of ways, while emphasising that the demand itself is the result of economic growth and improved wealth distribution. “People escaped poverty and increased their power to consume. When we had so many people below the poverty line, we had little productive investment, and now that this is growing, a corresponding increase in infrastructure investment is needed.”

Banco do Brasil lends to infrastructure projects alongside the BNDES, the country’s development bank, and the BNDES also lends money through Banco do Brasil. They must lead the charge, he says, because: “Brazilian capital markets are not like capital markets in the US or Britain.”

It is difficult to distribute the risks of long-term infrastructure projects in the private sector, he says, so the job of the public banks is to take over and make sure necessary projects get off the ground “until that part of the capital market is better and more liquid”.

“Because we have very large liquid assets, we’re going to be the major supporter [of infrastructure projects], together with the BNDES.”

Banco do Brasil has recently purchased mid-sized Banco Patagonia in Argentina. It also expects to raise billions more by increasing its share of publicly traded shares. The bank also distributes credit from other funds, such as the Merchant Marine Fund, dedicated to expanding shipyards.

And in the case of the country’s numerous privatisations, it facilitates project finance without necessarily acting as financier itself.

He says the bank provides impetus for infrastructure growth by expanding credit. At the moment, real estate finance corresponds to only 3 per cent of the country’s gross domestic product. Total credit is 45 per cent of GDP. In Chile, it is 80 per cent.

In agriculture, he says the bank’s role is vital: 70 per cent of agriculture finance comes from Banco do Brasil. Among other things, small producers in the sector rely on credit to make it to harvest.

Mr Malieni says Brazil benefits from having a large public bank, and not only through the sizeable earnings for shareholders and money brought back to Brazil from acquisitions abroad.

These can also be used to support social policies at home.

He says that slightly affects consideration of infrastructure projects: “Because we’re a public bank, we analyse every project. We can’t say, like a private bank can, ‘No, I’m not going to look at that’, for some reason. No. Any project that has the government’s support, we look at.”

But after that, he adds: “The decision to take on the risk is a sovereign decision based on the benefit of shareholders,” and is made internally.

Mr Malieni says the country is well-positioned to finance infrastructure needs, pointing to the large amount of foreign investment in Brazil’s equity markets.

The country can do much more to develop, though, such as investing more in education, increasing its volume of fixed-capital, and developing a culture of long-term savings. “The future of the country is bold, and promising,” he says.