Rumors
Spark Bank Run,
Break-Ins in Brazil
Rumors
that Brazil's social security fund called Bolsa Familia was to be
cancelled led thousands of people to rush to withdraw money from a
Brazilian bank over the weekend.
CNBC,
20
May, 2013
Customers
lined up at ATMs at dozens of bank branches of Caixa Economica
Federal, a government-owned bank, which pays the social security
subsidy on Saturday and Sunday.
"The
bank branches themselves aren't open on Saturdays. What happened is
that once the rumor gained momentum, people flocked down to their
local branches to try to withdraw money from the ATMs," Rafael
Carregal, a journalist at Brazil's main TV network Globo told CNBC.
Brazilian
newspaper Estado de Sao Paulo reported that at five branches in the
northeastern city of Sao Luiz and four others in the state of
Maranhao, depositors broke into branches. Most of the branches that
were affected were in the poorer northeast region of the country.
In
all, branches in 12 states were affected as the government tried to
quell the rumors.
"Police
had to intervene in many states, trying to keep the masses in order.
The minister of national development had to make a speech (on Sunday)
reassuring the people that nothing was to be changed in their
benefits program," Carregal said.
Bolsa
Familia is a social security program that pays money to 13.8 million
poor families in Brazil. It was the flagship program of President
Luiz Inacio Lula da Silva's center-left government aimed at
alleviating poverty and encouraging school enrollment. While Lula
left office in December 2010, the current President Dilma Roussef is
seen as Lula's protégé and has largely continued his policies.
"There
is absolutely no possibility of payments being suspended or indeed
any alteration to the normal timetable. Bolsa Familia is being paid.
It's being paid on time. And it's being paid according to the
schedule," Tereza Campello, Brazil's minister for social
development said over the weekend.
Brazil's
Justice Ministry said it was investigating the rumors.
But
Globo's Carregal said he wouldn't be surprised if more depositors
tried to withdraw money on Monday, when banks finally open.
But
America isn't.....!!?
Forget
Bank Runs, Credit Crazy Brazil Is Heading for Trouble
Rumors
that Brazil's social security fund called Bolsa Familia was to be
cancelled led thousands of people to rush to withdraw money from a
Brazilian bank over the weekend.
CNBC,
20
May, 2013
Brazil
faced a minor bank run over the weekend sparked by false rumors over
the country's social security fund, but one analyst told CNBC on
Tuesday that the real issue facing the country's banking system is a
runaway credit boom.
Neal
Shearing, chief emerging markets economist at macro-economic research
firm Capital Economics told CNBC that the massive increase in credit
in Brazil over the last ten years had increased the risk of a credit
crunch for Brazil's financial sector.
"The
point is that it's increased very rapidly and experience shows that
countries where credit increases rapidly, experience crisis at some
point or other."
Rumors
over the weekend that Brazil's social security fund called Bolsa
Familia was to be cancelled led thousands of people in the north-east
of the country to rush to withdraw money from Brazil's Caixa
Economica Federal, which pays the subsidy.
That
bank run had little to do with the credit-worthiness of the bank and
more to do with poor people worried about not receiving their monthly
social security payments. But Shearing warned that longer-term
problems were bubbling under the surface.
James
Lockhart Smith, principal analyst for Latin America at Maplecroft,
says the Brazilian bank run highlights growth and credit issues in
the Latin American country.
"Credit
cannot continue to be a driver of Brazil's growth. Banks like Caixa
bank have been lending massively to the housing sector and there is
evidence of a housing bubble. Defaults are on the rise and consumer
confidence is declining. What we're seeing is credit-fueled growth
starting to reach its limits - it's unsustainable," Shearing
said.
"There
won't be a systemic banking crisis because the government has the
sufficient assets to prevent this, but I wouldn't rule out one or two
banks, which have aggressively lent to lower income households,
running into difficulties."
'Puritan'
Brazil
Still,
not everyone is worried about the risks from Brazil's credit boom.
According to James Lockhart-Smith, principal analyst for Latin
America at risk analysis firm Maplecroft, Brazil is a "puritan"
compared to western nations when it came to credit.
"By
Western standards, Brazil is still quite puritan, we're talking about
credit to GDP-of-53 percent which is still ok," Lockhart-Smith
told CNBC Europe's "Squawk Box" on Tuesday.
But
Shearing of Capital Economics pointed out that if you include
corporate bond issuance and lending by Brazil's state development
bank, the credit-to-GDP ratio jumped to 80 percent and had doubled
over the last 10 years.
Lockhart-Smith
said that while credit had grown extremely fast, it wasn't
unsustainable .
"I
think, the health of the banking sector overall is still pretty
good,"he added.
"That
said, there are a lot of concerns about growth there and what's going
to happen to Brazil going forward."
Brazil's
economy has slowed dramatically in recent years from 7.5 percent in
2010 to a projected growth rate of just 3.2 percent in 2013.
On
Tuesday, 100 economists and analysts surveyed by the central bank
lowered their growth forecasts to 2.98 percent in 2013.
"Looking
forward it's an increasingly complicated picture,"
Lockhart-Smith said. "The government's trying to forge ahead
with its infrastructure program but things have changed a lot for
Brazil. Ten years ago it was a really bright prospect for investors
but in the last 12 to 24 months things have changed completely and I
don't think people are going to be looking there for much growth
anymore."
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