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AmericasMarch 18 2011

Does Brazil have a credit bubble?

Fears expressed recently that a credit bubble is emerging in Brazil have been dismissed by bankers in the country. However, there are other risks to the country's economy that do concern them. 
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Does Brazil have a credit bubble?Storms brewing in Sao Paulo, Brazil as credit markets expand too quickly

Brazilian banks are ebullient. In one of the most profitable financial sectors in the world, the big institutions – Itaú Unibanco, Banco Bradesco and Banco do Brasil – continue to post record numbers, boosted by high real interest rates and the rapid expansion of credit to middle-class consumers. In the past eight years, the amount of credit in the economy has more than doubled.

So soon after the credit crisis in the US, some observers have asked whether this may be contributing to a bubble, one early sign of which might be Banco PanAmericano’s distressed sell-off after it emerged that the bank was fudging credit losses in lending. One of the most provocative statements of this fear came from an article written by Paul Marshall, chief investment officer at hedge fund Marshall Wace, and Amit Rajpal, portfolio manager of MW Global Financials Funds.

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