Determinants of bank spread in Brazil and the impact of these variables on the Brazilian credit market between 2000 and 2020

Abstract

The present study identifies the main determinants of bank spread rates observed in Brazil's credit operations between 2000 and 2020. The variables composing the bank spread are examined, and their influence on the cost of credit for Brazil is demonstrated to achieve this objective. The methodology used for this research includes bibliographic and descriptive as well as econometric analysis, comparing the spread rates and the Brazilian credit market with those of other economies and confronting the findings of previous studies with the results of this work. It is observed that, during the analyzed period, Brazil has the highest average bank spread in the world and that its credit market is relatively underdeveloped. Furthermore, the microeconomic factors determining Brazil's spread are credit risk, liquidity risk, average return on assets, and market concentration. On the other hand, the macroeconomic variables most relevant for determining loan interest rates are the real GDP growth and the benchmark interest rate. Lastly, by shedding light on the competitive pressure exerted by public banks, this research aims to contribute to the economic discussion on the Brazilian bank spread.