Brazil: Financial System Stability Assessment
IMF Staff Country Reports, November 30, 2018
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Bibliographic details
- Published: November 30, 2018
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781484387474.002
Summary findings
- Since the Brazil 2012 FSAP, the financial system has been stable despite the deep recession.
- The resiliency of the banking system was supported by high profitability, buoyed by large interest margins.
- While the financial system has grown since the 2012 FSAP, its structure remains largely unchanged.
- The system is dominated by large, vertically-integrated financial conglomerates and concentrated in liquid short-term instruments.
- The public sector continues to play a dominant role in the financial sector, and its interconnectedness.
- Banks are broadly resilient to severe macrofinancial shocks.
- Current high profits and capital ratios support the resiliency of banks under a severe stress test scenario.
- Under the stress scenario, small capital shortfalls result; banks would nevertheless experience reduced income, including from market loss on government bonds, and high credit losses on exposures to the corporate sector which, despite recent improvement, is still vulnerable to shocks.
- This benign outcome deteriorates if their capital is adjusted for deferred tax assets.
- Some banks are exposed to concentration risk.
- Banks are generally well-positioned to manage short-term and medium-term liquidity pressures and interbank contagion seems limited.
Risks and vulnerabilities
- Concentration risk in some banks.
- High exposure to government bonds leading to market loss under stress.
- Corporate sector exposures subject to high credit losses under severe shocks despite recent improvement.
- Dependence on high profitability and large interest margins to support resiliency.
- Fragility increases when capital is adjusted for deferred tax assets.
Stress test scenario outcomes
- Banks remain broadly resilient under the severe stress test scenario.
- Results include:
- Small capital shortfalls under the scenario.
- Reduced income from market loss on government bonds.
- High credit losses on corporate sector exposures.
- Adjusting capital for deferred tax assets leads to deterioration of the outcome.
Policy implications and actions needed
- Address bank-specific risk profiles to boost resilience.
- Mitigate concentration risks in individual banks.
- Monitor and manage exposures to government bonds and corporate sector credit risk.
- Evaluate capital treatment of deferred tax assets given impact on resilience.
Publication and metadata
- Publication date: November 30, 2018
- Pages: 96
- Volume: 2018
- Issue: 339
- Series: Country Report No. 2018/339
- DOI: https://doi.org/10.5089/9781484387474.002
- Stock No: 1BRAEA2018003
- ISBN: 9781484387474
- ISSN: 1934-7685
- Subject: Banking, Commercial banks, Credit, Economic sectors, Financial institutions, Financial sector, Financial Sector Assessment Program, Money, Mutual funds, Pension spending, State-owned banks
- Keywords: Banco central, bridge bank statute, capital ratio, central bank, Commercial banks, CR, Credit, credit risk, due diligence, financial product, Financial sector, financial system, fixed income, foreign exchange, FX market, Global, government bond, insurance fund, interest rate, ISCR, Mutual funds, risk profile, solo bank requirement, State-owned banks
International Monetary Fund. Monetary and Capital Markets Department "Brazil: Financial System Stability Assessment", IMF Staff Country Reports 2018, 339 (2018).
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- Country Report