Mid-size banks: the big squeeze.


In the Brazilian banking world, big is still beautiful. But mid-size banks are feeling a squeeze, due to the extended international financial crisis, higher funding costs and also the backlash from several scandals involving fraud. Over the last two years, Banco Panamericano (of the high-profile television mogul Silvio Santos), Banco Morada and Cruzeiro do Sul were all caught up in the regulatory nets of the central bank, investigated for fraudulent operations and large boles in their accounts.

This has caused a "credibility challenge" to other middle market banks, says Luis Miguel Santacreu, a bank industry analyst at Austin Ratings, a Sao Paulo-based consultancy. Hoping to head off further trouble, authorities introduced new regulations earlier this year.

Banks working in consumer finance also faced tougher funding conditions and a drop in profitability on the back of higher default rates, especially in car Loans. Some, like BMG, had to look for partners. A mid-size bank specializing in payroll loans (those that are backed by wages or pensions), BMG...

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