Just after lunchtime on Thursday, Moody’s announced it was finally dropping coverage of Banco Schahin after the cash-strapped Brazilian bank was recently forced to sell out to rival Banco BMG to avoid collapse. Two hours later, Itaú Unibanco, one of the country’s largest banks, announced it had received the go-ahead for its office in Colombia - the first stage of its conquest of Latin America.

Brazil’s banking system may be one of the sturdiest in the world, but it’s not always the most equal. While the big banks rake in billions every year and are now busy plotting their expansion into Latin America and even the US, several smaller lenders have been struggling just to stay afloat.

Itaú Unibanco’s announcement that it had won approval to open its representative office in Colombia was largely expected. Next on the agenda is a license to operate as a financial corporation in the country, followed by an initial investment of about $200m. The bank also told the FT earlier this year that it plans to target the Mexican market, investing a similar amount next year.

But why does Itaú appear to be having so much more luck than some of its smaller peers? The answer is largely two-fold: Basel III and a corruption scandal at a little-known Brazilian bank called PanAmericano last year.

This from Luis Miguel Santacreu, an analyst at Austin Asis, a banking sector consultancy in São Paulo:

Some banks had the wrong business plan or they weren’t big enough to operate in certain niches of the banking market. For example, wage-deducted loans appeared to be an attractive product at first but after a while it became clear they weren’t that profitable. Some banks didn’t have enough equity to keep this kind of credit on their books.

And then, after the crisis at PanAmericano, the business plans of these banks were under scrutiny. The central bank became much more attentive. Then along came the issue of Basel III, which raised capital requirements…. Some banks needed capitalisation plans to show to the central bank that their shareholders were prepared to bolster their capital. But some banks didn’t present these plans and one of the alternatives was to sell them.

While Banco Schahin was sold last April, regulators also took over Rio-based Banco Morada, for example, and promised to scrutinise its books.

But could there be more casualties in Brazil’s apparently ‘sizeist’ banking industry?

“Now and again we hear that some banks are on the central bank’s radar, but it’s not a generalised problem that involves many institutions or threatens the banking system itself.”

For the time being at least, it looks like biggest is still best for Brazil’s banks.

Related reading:
Brazil banks outshine global rivals, FT
Itaú to buy out Redecard, FT
Itaú: The origins of a global bank, FT
Itáu beats Bradesco for Carrefour stake, beyondbrics

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