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Reply to "Comment on: 'Why is bank credit in Brazil the most expensive in the world"'?

Document Citado por Related
Data01 Outubro 2020
AuthorAbreu, Conrado

In his comments on "Why is bank credit in Brazil the most expensive in the world?," Barbosa (2020) makes some important considerations, relevant enough as to merit some additional comments. Here, we would like to address two of his central arguments:

  1. The high concentration in the Brazilian banking industry may not significantly lead by itself to structurally higher lending rates.

  2. Low creditor's protection has not been adequately addressed, in the original article. The interaction of low creditor protection with high concentration may better explain why lending rates are so high in Brazil.

To explore these arguments and improve the context of the discussion of low creditor rights in the original article, we run a series of interviews with market agents of the Brazilian lending industry, including employees of commercial banks, fintechs' entrepreneurs and a former banker. Low creditor protection is included in the original manuscript, illustrated by a figure that contrasts the strength of creditors' legal rights (replicated here as Figure 1), but it is true that the referred articles in the original study do not explicitly include low creditor's protection as a dependent variable (in the original manuscript, we ponder that this is most likely due to the lack of data).

But first, let us delve into the reasons for which market concentration is a fundamental determinant of the extremely high interest rates in Brazil, even though concentration is just a proxy for competition. Let us consider the counterfactual: market concentration would not contribute to higher interest rates only if, as Barbosa (2020) points out, we observe competitive behavior between the leading banks. Yet, price competition is almost unobserved in the Brazilian credit markets...

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