BC changes methodology and excludes Santander from banking concentration calculation

The Central Bank started to adopt a new methodology to measure the concentration of the financial system, considering only the four largest institutions in the country, and no longer the five largest banks. With that, Santander, which occupies the fifth position, was left out.

According to the new metric, the reduction in the concentration of the credit market in the hands of the four largest banks was marginal, from 59.4% to 59.3% between 2020 and 2021, that is, a drop of only 0.1 percentage point.

By the old criterion, considering the five largest banks in the country in the credit market, concentration maintained the downward trend of recent years and fell again in 2021.

Last year, Caixa Econômica Federal, Banco do Brasil, Itaú, Bradesco and Santander concentrated 67.9% of operations, according to the BC in the banking economy report released this Thursday (6th).

The document shows in one of its annexes that there was a drop of 0.6 percentage point compared to 2020, when the group of five held 68.5% of the credit market. In December 2018, this concentration index was 70.9%.

The data consider, in addition to the banking sector, the non-banking segment, which includes fintechs and credit unions.

Understand the change in methodology

According to the BC, the last edition of the report adopted the concept “traditionally used in the literature and by a multilateral organization”. With the change, the Brazilian monetary authority aligned itself with the rule used by the OECD (Organization for Economic Cooperation and Development).

According to director Renato Dias de Brito Gomes (Organization of the Financial System and Resolution), the new methodology is more common internationally and more informative about the concentration of the system. The capital rules, in turn, have not changed.

“An index that takes a more qualified top of the market is more informative. In any case, there is no reason not to adapt to international practice”, he said. “The inclusion or not of the fifth largest institution does not change any of the conclusions of the report,” he added.

For Febraban (Brazilian Federation of Banks), the BC introduced important improvements to its methodology, allowing for a better comparison with other countries and a “broader and more in-depth” diagnosis of the level of concentration in the banking sector.

“According to the BC, the intention is to allow a better comparison with other markets that mostly adopt this concentration ratio (RC4), which is very welcome. It is worth noting that the OECD also adopts this practice, which means a convergence to the entity’s standards, given Brazil’s interest in joining the organization”, highlighted the entity in a note.