Reuters: Regulatory News: Brazil to boost oversight of banking sector mergers

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Brazil to boost oversight of banking sector mergers Apr 26th 2012, 21:08 Thu Apr 26, 2012 5:08pm EDT * Central bank to toughen scrutiny on bank mergers * Says rules should help improve customer service * May help ease perception of lax merger oversight By Guillermo Parra-Bernal and Alonso Soto SAO PAULO/BRASILIA, April 26 (Reuters) - Brazil's central bank will toughen scrutiny over mergers and acquisitions in the financial industry that have in recent years resulted in massive scale and efficiency gains for lenders but scant improvements in the quality of customer service. The central bank said in a statement on Thursday that any financial institution seeking to acquire or merge with a rival must commit to improving customer service. The set of rules, which the bank dubbed an "accord on concentration limits," will also urge banks to disclose more details on a merger deal. The decision comes amid growing government pressure on the banking industry - for years Brazil's most profitable - to lower interest rates and contribute more to the nation's economic development. State banks are being instructed by President Dilma Rousseff's administration to slash borrowing costs and step up disbursements to kick-start a slowing economy. "This regulatory act is part of a series of initiatives by the central to enhance competition in the financial system, as well as to ensure that customers can exercise their right to choose," the statement said. For example, Itaú Holding Financeira's purchase of smaller rival União de Bancos Brasileiros and the acquisition of ABN Amro's local unit by Banco Santander in 2008 were widely criticized by clients, saying the scale gains that inflated the lenders' profits did not bring about significant improvements in customer service. The central bank's move may also help remove the perception among investors that mergers and acquisitions face little regulatory scrutiny in Brazil. Consumer advocacy groups often claim that antitrust regulators are too bland when analyzing corporate takeovers that give firms stronger pricing and market power that is damaging to competition. Banks led customer complaint rankings in Brazil last year, ahead of retailers, healthcare operators and telecommunications carriers, according to consumer protection institute Idec. It was first time in 11 years that banks received more complaints than health insurance plans. Consumers often complain that commercial lenders apply inexistent fees on services, overcharge, or sell services tied to the forced acquisition of other products. Itaú Unibanco led the Idec complaint rankings this year, followed closely by state-controlled Banco do Brasil. Itaú Unibanco, the largest Brazilian private sector lender, was surpassed as the nation's No. 1 bank in 2010 after Banco do Brasil began an aggressive move to buy credit portfolios and smaller rivals in banking, insurance and health services. Banco do Brasil has also focused its growth strategy on offering loans at cheaper rates, a move that nongovernment bank executives repeatedly said could create imbalances in the pricing of credit in Brazil. Link this Share this Digg this Email Reprints

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