Fraud and economic pressure are problems for Brazil’s small banks

Seven bank interventions, including major cases of fraud, have rocked Brazil’s small and medium-sized bank sector. Investors are calling into question everything from banks’ business models and costs of funding through to corporate governance standards, the efficacy of their accountants and central bank oversight. Can the sector survive?

The Banco Central do Brasil has found itself forced to intervene in Brazil’s small and medium-sized banking sector time and time again since 2008. Each case has been different and in some cases the banks are admittedly tiny. The seven banks in which the central bank has intervened represent less than 1% of total assets in Brazil’s banking system. Oboé Crédito, Financiamento e Investimento, based in Fortaleza, whose assets the central bank liquidated in February 2012, had assets of just 409.6