Brazil’s BMG Bank Thinks Country’s Central Bank Should Not Use Foreign Reserves

Brazil’s BMG Bank is the second most profitable bank in Brazil. Banco do Brazil is number one, but the recent recession and the high inflation are eating into some of the profits. BMG Bank makes most of its profits from payroll loans, and that business is still good even though the 4 million people that comprise the middle class in Brazil are struggling. The country’s inflation factor is hovering around 10 percent, and the real, the currency of the country, is worth less than any banker expected it be in 2015.
Those issues and the political turmoil that are creating havoc all over the country has prompted some analyst to suggest that the central bank uses some of its $370 billion foreign reserve to bring some financial relief to the country.
The Vice-President and Director of BMG, Marcio Alaor, thinks selling dollars on the spot currency market is not a good idea at this point. Some economists want to reduce the public debt, and using Brazil’s foreign reserves could accomplish that goal.
BMG Bank is a privately owned bank. The bank has been serving Brazil since 1930. The Guimarães family has owned the bank since its inception, and Director Alaor has been in charge of handling bank affairs for decades. BMG has a very active vehicle loan division along with its payroll loan department. Mr. Alaor said most Brazilians companies have not had a hard time finding financing at his bank or other Brazilian banks. Alaor said the recent international turbulence, and the uncertainty that exists in Brazil are not reasons to tap into the country’s reserves.
But not everybody agrees with Alaor or BMG Bank. Interest rates in Brazil are out of control, and Brazilian companies are worried about taking on more debt at those high interest rates. But Alexandre Tombini, Brazil’s central bank chief, said he agrees with Alaor. Tombini recently told lawmakers that using any part of the $370 billion reserve would jeopardize the country’s insurance policy. That what the reserve is there for, according the central bank chief. Those funds should only be used in a major financial disaster, and Marcio Alaor and Tombini don’t consider the current crisis a major financial disaster.
Meanwhile, BMG Bank is handling Brazil’s internal issues the same way it has handled them in the past. The bank is careful when loans are made, but they always help their clients weather these financials storms in some way. That’s why the bank is so profitable.

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