Brazil central bank director sees bank mergers

Small and medium-sized Brazilian lenders will have to merge with rivals to strengthen their capital base and revamp their fundraising structure, central bank director Anthero Meirelles said in a newspaper interview published on Monday.

Smaller financial institutions must “adapt their strategies” to face a more competitive landscape in the industry, Meirelles, the central bank’s industry watchdog, told Valor Economico.

Smaller banks must rely less on selling part of their loan books to bigger rivals to raise cash for lending, Meirelles said, noting the risks of such practices in the wake of the global financial crisis.

His remarks come after the central bank said in April that it would scrutinize the books of small lender Banco Morada because of irregularities, and after mid-sized lenders including Banco PanAmericano (BPNM4.SA) and Banco Schahin were acquired by bigger rivals.

Further consolidation would not create concern about concentration of financial assets in the hands of fewer institutions, Meirelles told Valor. At the moment, the central bank is analyzing requests from at least 20 local and foreign lenders to operate in Brazil, the newspaper quoted him as saying.

Brazil’s banking system, which is dominated by home-grown banks, cruised through the global financial crisis virtually unfazed thanks to strong government backing, hefty cash reserves and conservative lending practices.

Yet some investors criticized the central bank for failing to spot accounting problems at PanAmericano, which had to be taken over by securities firm BTG Pactual [BTG.UL] in the wake of massive losses.