Type to search

Brazil Banks: More Consolidation

In three to five years, five banking giants will control 85 percent of the Brazilian market.


The year 2008 will be marked as a milestone for the banking segment in Brazil.  Banco Itaú and Unibanco, the second and fourth largest non-public banks, joined forces to form not only the largest bank but also the fourth largest conglomerate in Latin America.  This strategic union radically transforms an already highly-competitive sector that will see further consolidation in coming years.

The newly created entity – Itaú Unibanco Holding - was born 13 percent larger than Banco do Brasil (even after Banco do Brasil acquired Nossa Caixa) and 58 percent larger than both its main rivals Bradesco and Santander.  At current prices, Itaú Unibanco’s combined assets total $201 billion, while Banco do Brasil holds $178 billion and Bradesco $128 billion, only one billion ahead of Santander.  

In the credit card segment, Itaú will be responsible for an estimated 30 percent of all cards in force and 36 percent of total revenues.  The market value of the new bank is estimated at $41 billion, ahead of any other Latin American bank and behind such regional giants as Petrobrás, Vale (formerly CVRD), and America Movil.

There are two potential consequences that may arise as a result of such a significant merger: a stronger wave of consolidation in Brazil and an international (likely Latin American) entry by an Itaú Unibanco that is well-positioned to go global.


The consolidation trend in the Brazilian banking industry started when the 1994 Plano Real annihilated inflation and controlled exchange rates, bringing stability to the economy.  Since then, mergers and acquisitions have become the most important channel for foreign direct investment (FDI) in Brazil.  The process peaked in 1997, when 372 acquisitions took place in Brazil, 176 of which were in the banking segment and 56 percent with foreign investment.  The consolidation trend slowed after Banespa was acquired by Santander of Spain in 2000, to regain momentum last year with another Santander acquisition of ABN Amro.

The trend intensified in 2008 with the Itaú Unibanco merger and recent Banco do Brasil acquisitions.  As of November 2008, three banks held 51 percent of the market and the top five banks held 74 percent of total assets.

The trend for 2009 and beyond clearly points towards further consolidation of the industry, comprised today of more than 100 banks.  The expectation is that, in three to five years, five banking giants will control 85 percent of the market, with a balance between one public bank (Banco do Brasil), two Brazilian banks (Itaú Unibanco and Bradesco), and two foreign banks (Santander and HSBC).

Allowing for this consolidation trend are the strong entrance barriers presented by the segment in Brazil, including technological, informational, and regulatory aspects.  New entrants may not be able to compete in equal terms with established players, local or foreign in origin.

•    Technological barriers:  internet banking platforms, implementation of a nationally-available ATM network and physical branches – all connected and ready for real-time transactions – accompanied by heavy investments in fraud detection and security, present one of the most costly entrance barriers in the segment;

•    Regulatory barriers: as pillars of the economy, a number of requirements must be met for a bank to survive both in calm and turbulent waters.  Minimum levels of capital, adherence to the Basel Agreement, and insured deposits are three of the most important elements in the regulatory environment;

•    Informational barriers:  to develop a reliable methodology of credit analysis – a critical function – banks must dedicate years, build accurate databases, and establish strong relationships with client-companies.


Itaú Unibanco, now the 17th largest company in the world, declared plans to become the first Brazilian financial institution to become a global player, starting with Latin America.  The company anticipates its first move out of the region in five years, after consolidating its position in Latin America, where Itaú already has operations in Argentina.  Four other probable markets for entry are Chile, Mexico, Colombia, and Peru, countries that present economic stability and good growth levels.

The first competitive trend in Brazilian banking started in the 1990s, when inflation was controlled and banks had to cut costs and learn how to make money without relying on the “float” (profits from client’s money left in the account overnight).  The second trend – stronger in the last 10 years – is technological, demanding heavy investments in internet functionalities, internal systems, and security aspects.  The third wave involved the credit boom over the last four years.  The internationalization of Brazilian banks comes as a fourth competitive trend, when the ground will have to be conquered beyond the country’s borders.  

Besides internationalization, new trends will continue to bring significant changes in how banks serve the market. Among the changes beginning to take place are:

•    Financing by alternative players:  real estate companies, car dealerships, and retailers offering financing to clients, be it directly with their own resources or through credit co-ops, like it is done today in United States.

•    M-banking:  mobile phones, internet, and cable TV establishing themselves as important channels between the consumer, the goods they purchase, and the financial tools and institutions.  The credit card industry may see strong changes as mobile phone companies invade its long-conquered territory.  The market may also see more people purchasing goods through their digital TVs, maybe also by-passing credit cards and, who knows, retailers and their financing plans.

•    Banking everywhere:  with current forms of alternative banking services being offered by lottery houses, supermarkets and drugstores (such as bill pay, deposits, and drafts), and the emergence of new “bankers” such as mobile operators, TV channels, and maybe internet portals, banks need to learn how to compete in totally different arenas.

As in every consolidating market, opportunities arise.  Companies only need to assess where they are, and what needs to be done:  it can be a merger or acquisition, or simply understanding trends and the competitive environment – market size, share, trends, entrance barriers, or best practices, for example.

This article is republished with permission from Tendencias, the magazine of Kroll InfoAmericas.   


To read this post, you must purchase a Latin Trade Business Intelligence Subscription.
Scroll to top of page
Begin Zoho Tracking Code for Analytics