Brazil’s Wealth Generators: High Profit Business Sectors

The banks112 were like, "Nah, we're gonna chill on the credit stuff and start investing in financial assets, ya know? Especially public securities, just doing what the policymakers want." Yo, like, 58% of the total assets banking credit ops went down to around 40% on average in the last three years of the decade, fam. OMG, like, investing in financial securities and shares totally skyrocketed from, like, 10% of total assets in 1986 to, like, almost 33% in 1989. It's, like, so lit! Most of these financial assets (70 per cent) were like public bonds that were all about that overnight interest rates and had daily liquidity guaranteed by the BACEN. Once again the banking system's strategy of flexing hard on public securities and mad liquid assets during a high-key four-digit inflation was hella rewarding, fam. In 1989, like, the rate of profitability was, like, 17.3 percent for the biggest local banks and, like, 20 percent for the biggest foreign banks (Belluzzo and Almeida 2002, p.268).

OMG, like the banking stuff I just mentioned? 

It's lit AF and brought everyone together - non-financial corps, banks, and even the rich peeps. So dope, right? The fin system totally slayed at connecting non-fin corps and rich peeps' chill balances with the lit circuit of fin accumulation around the indexed public securities and other indexed fin assets negotiated in the overnight system. Yo, like, those mad gains were totally boosted by the inflation vibes, ya know? The banking system and its rich clients were all up in that inflation game, fam. On the flip side, the gov totally lost control of public finances cuz in this system it couldn't even flex an active fiscal policy and had to finance its deficits at mad high costs. OMG, like the stuff I just mentioned is so lit, but let me tell you, the BACEN economic policy directive is like super important in helping the banking system flex and make bank. OMG, as non-financial corps and households were like totally reducing their demand for credit, the aggressive indebtedness policies launched by the BACEN were like the main market for banks to invest in. Lit! OMG, like BACEN was sooo determined to keep the high real interest rate on public securities, which gave the banking system major flex to play around with the rates on time deposits and assets. It's like a total game of arbitrate, you know? So like, even though Brazil was going through the worst recession ever and banks were like not giving out loans, the big private banks and foreign banks were still making mad profits. In 1981, their profits were around 25% and 30%, and in 1983 it was around 20%. Crazy, right? (Belluzzo and Almeida 2002, p.249).

OMG, it's like, the banks' performance was all about those high real interest rates and inflation, ya know?

But then, in 1986, they were like, "Nah, let's reduce those interest rates and inflation." And it was like, so obvious that it affected their performance, you feel me? The combo of factors that like totally influenced the changes in banking vibes and makin' bank during the adjustment period were like briefly flipped when the Cruzado Plan was introduced. First, like, the elimination of indexation of financial contracts and the reduction of inflation to one digit monthly, the gains with floating were like, decisively reduced. Second, interest rates like totally tanked to like super chill levels at the same time that the government swapped money issues for security issues. OMG, the banking system totally scored some mad cheap resources to fund its operations, y'know? The end of inflation and the rise in public demand for moolah let banks flex their sight deposits by a whopping 155%, making up 30% of all their liabilities. However, the real tea on whether the banks can flex in a low-key inflation vibe would be how they handle their assets, you know? On the real, as the public sector was like, "bye bye debt," the banking system had to flex and start giving mad credit to the private sector to stay profitable. OMG, like the total shares and securities that private commercial banks had stayed at around 10% of total assets, but banks' holdings of public securities dropped to just 1.7% of total assets compared to 7.5% in 1985. So cray! And yet, like overall credit ops increased 54% in real terms, they increased a whopping 72% to the private sector. 

The commercial banks were like, "Yo, we quickly started giving out mad short-term credit to peeps and hooking up corporations with that working capital, ya know? 

This led to the credit game in the non-financial private sector reaching a solid 48% of the banks' total assets, bringing us back to those dope levels we saw in the late 70s." All these transformations resulted from lower inflation and interest rates and like, they totally flipped the script on the banking game between 1980 and 1985. They also caused major Ls in profits for the banks, cuz the biggest banks' profits got cut in half with the decrease in floating and interest revenues (Belluzzo and Almeida 2002, p.259; FUNDAP 1989). OMG, the Cruzado Plan totally wrecked indexed money, which was like the major source of the banking system's mad gains. SMH. Between 1988 and 1989, like, with the strong belief that the Cruzado Plan totally flopped because of, like, way too much credit and spending, policymakers were all about bringing back high real interest rates and credit controls, you know? The banking system also flexed hard and made bank from inflation and the mad hikes in real interest rates. Between 1980 and 1984, the banking system's number of branches like totally shot up by 31%, all to flex on deposit collection (Paula 1998). OMG, the services were totally free and they were all about that automation, like, so lit. Banking competition was on fleek. The hustle for that cheddar, especially the stacks in the bank, was hella justified by the mad gains from inflation, ya feel me? That's like, banks made mad bank by taking non-indexed cash from people's sight deposits and investing it in lit public securities or other dope financial assets.