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8/12/2019 Brazil and Germany
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Banking Structures
Around the World
Brazil and Germany
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German Banking System
Features
German banks are typically universal
A universal bank provides a complete range
of commercial and investment bankingservices
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German Banking System
The broad umbrella of universal bankcan be divided into three categories onthe basis of ownership and legal form.
These categories are:commercial banking sector;
saving bank sector; and
credit co-operative sector
These three categories of universalbanks together account for roughly 80%of the volume of business in Germany.
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The Structure of German Banking
German Banking Sector
Commercial Saving Credit Co-op Other
Big Banks
Foreign Banks
Private Banks
Regional + Other
Local Savings
State Savings
Central Savings
Local Co-op
Regional Co-op
Fed. Clearing
Mortgage Banks
Banks w/Sp.Functions
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Commercial Banks in Germany
Commercial banks in Germany as a whole,
account for roughly 25% share in the total volume
of banking activity.
There are four different classes of banks undercommercial banks category:
The Big Banks
Regional and other commercial banks
Foreign banksPrivate banks
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The Big Banks
Deutsche Bank, Dresdner Bank, Commerzbankand their Berlin subsidiaries operate nationallythrough network of local branch offices.
Although these banks are major banks in term oftheir balance sheet volume, however, theirvolume is not as significant in terms of theirshare of the German banking sector.
If their interest in private business (such asmortgages) is included in the volume, then thecase may be different.
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Regional and other Commercial
Banks
These banks are all banks other than those big
banks.
These banks concentrates on providing universal
banking services in their particular regions, butsome maintain their system of branches which
had allowed them to operate on interregional or
national basis.
Two such banks with an extensive branchnetwork are the Bayerische Vereinsbank and the
Hypo-Bank.
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Foreign and Private Banks
Foreign banks in the German banking system have not
been significant
Foreign banks are legally allowed to offer the same
services which are allowed to domestic banks.
Private banks consist of limited partnership (sole
ownership is not allowed under German banking law)
Although private banker can conduct all banking
activities, they specialise in export finance, securities
trading, industrial finance, property management andhousing finance etc.
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Saving Bank Sector
Savings Bank Sector had the largest share in thedomestic volume of banking activity.
Saving banks were originally conceived as non-
profit making concerns
to serve relatively less well-off members of thecommunity;
to give credit on favourable terms to public
authorities;
to finance local investment in the region in whichthe saving bank was located
Thesebanks still follow these obligations but nowthey have become universal banks which compete
with the commercial banks for most forms of
banking services.
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Saving Bank Sector
There are three tiers within the saving
bank sector. These are:
Local savings banks
State saving banks
Central saving banks
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Local Saving Banks
These are municipal or district institutions
incorporated under public law as independent legal
entities.
Each state had its own Savings Bank Act, which
specifies the structure and organisation of the
saving banks in that state.
A local saving bank is usually permitted to operate
only in its own region and its investment in
securities and other assets are subject to
restrictions.
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State Savings Banks (Central Giro
Institutions)
Each state saving bank is incorporatedunder public law and is owned by itsrespective sate government and statesaving bank association
Works as clearing houses for their member localsavings banks.
They are state bankers in their respectivestates and can conduct their business on
interregional and international basis.The largest state saving bank is the
Westduetsche Landesbank Girozentrale, whichis roughly comparable to Commerzbank in terms
of balance sheet assets.
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Central Savings Bank
Deutsche Girozentrale (DGZ) serves as thecentral clearing bank for the saving banksystem and holds reserves for state
saving banks
Is similar to state saving banks in term ofbusiness it conducts, but it is smaller in
size than many of them.Although, both local saving banks and state
savings banks are universal banks, someactivities such as securities tradingunderwriting and international business are
more important.
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Credit Co-operative Sector
The credit cooperative originated simply as cooperative banks.
Provides credit to their members, but now have developed to
universal banks.
The organisation of the credit cooperative sector is similar to
that of the saving bank sector.
There are large numbers of local credit cooperatives and a
system of larger regional banks headed by a central clearing-
house institution.
There are three tiers within the credit cooperative sector.
These are:
Local cooperative banks
Regional central cooperative banks
Federal clearing house institutions
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Local and Regional Co-operative
Banks
Local cooperative banks The first tier of this sector comprises local banks
organised as cooperatives, whose members are localindividuals and businesses.
Members of the local credit cooperatives contributecapital.
Regional Central cooperative banks The local credit cooperative are headed by a second tier
consisting of regional central cooperative banks, whichare either stock corporations or registered cooperativesowned by the local credit cooperatives.
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Federal Clearing House
Institutions
Third tier consists of a federal clearing-
house institution, which is a stock
corporation owned by the regional creditcooperatives.
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Mortgage Banks
Among those banks in Germany, which provides a
specialised range of banking services rather than universal
services, the most important group consists of the mortgage
banks.
These banks are owned by public or private sectors.
The laws in Germany generally limits mortgage banks to
making long term mortgage loans and loans to public
authorities.
These banks finance through bonds and long term deposits.
Most private mortgage banks are usually owned bycommercial banks, which are interested to enter into this
market.
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Banks with Specialised Functions
The group of banks offering specialised banking
services comprises various public and private
institutions
Their share in total volume of banking business
in Germany has been in the range of 10-12%.
These banks provide loans finance such as:
export finance;
finance of projects in less developed countries;environmental programmes;
lending to small/medium sized German firms
These banks finance through government funds,
bank loans and other sources such as bond issues.
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BRAZIL
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A SOLID BANKING SYSTEM
Brazil has asolid bankingsystemandnationalbanks withbranchesthroughoutthe country
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A SOLID BANKING SYSTEM
All payment orders(funds transfer) arehandled electronically
and may be settled inreal-time with intraday
availability.
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A SOLID BANKING SYSTEM
Checks issued anywhere in
the country are cleared andsettled within 48 hours.
Web-based services havebecome common andBrazilian banks are leaders
in Internet banking.
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Key Facts
Since 2003, more than 8 million jobs have been created in Brazil and theunemployment rate has fallen from 12.1% to 6.5%. This has created a new section ofborrowers the lower-middle and working classes.
The total stock of mortgages in Brazil is less than 4% of GDP now, and the countryhas a housing deficit of 6-8 million units. Both factors are expected to drive growthin the mortgage lending segment of the banking industry.
Total credit in Brazils economy, comprising credit to both individuals and industry,has grown from 35.2% of GDP in 2007 to 46.4% of GDP, as of March 2011.
According to credit rating agency Serasa Experian, in May 2011, loan defaultsregistered the highest monthly increase since March 2010. Whats more, theyindicated a growth of 20.6% in defaults during the first five months of 2011.
Brazil is building a positive credit registry to help banks review the credit histories ofall borrowers and not just defaulters.
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Key Facts ( Contd.)
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Key Facts (Contd.)
The minimum Basel Ratio of the Brazilian banking system is set at 11 percent,
which 3 percent higher than what is suggested in the Basel Accord. Most
banks, in reality, operate much higher than this level (at over 17.5 percent) with
low leverage ratios (over six times the level of their capital holdings)
All banking limits and requirements are applied in consolidated terms which
means that so called toxic assets or special investment vehicles are put under
heavy scrutiny
All investment funds are weighted in line with their corresponding assets. This
is undertaken to ensure that leverage levels are reasonable and over-exposure
is kept to a minimum
Over the Counter (OTC) derivatives need to be registered with the Central Bank
(or face legal action)
The Brazilian Securities and Exchange Commission (Comisso de ValoresMobilirio) legally obliges all public companies to disclose all information with
regards to the financial instruments that are being used. In addition, full
sensibility' analyses are undertaken on a regular basis
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Key Facts (Contd.)
- The central bank has control over all non-financial subsidiaries of bankinginstitutions;
- Expected loss provisions are taken into consideration (not just actuallosses);
- Liquidity and market risks are monitored intensively by the Central Bank
on a daily basis;
- Bank reserves must cover all debt payments past;
- All lending above the value of $BRL 5,000 must be registered with theCentral Bank;
- Issue ratings are regularly undertaken;- Regulatory procedures are applied to all banks and are also regularlyupdated in line with financial innovations (approved by the Central Bank),international standards and conjuncture changes.
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Major Players
Among the top ten Brazilian banks in terms of total assets, three are
government-owned (Banco do Brasil, Caixa Economica Federal or
CEF, and the countrys development bank BNDES); five are domestic
non-government owned (Bradesco, Itau-Unibanco, Banco Santander
Brasil, Safra, and Votorantim); and two are foreign (HSBC and
Citibank). The top four publicly listed banks are Banco do Brasil, Itau-Unibanco, Bradesco, and Banco Santander Brasil.