Risk Management in Brazil: Strengthening Risk Operations in a Risk On, Risk Off Environment

by Dennis Kong,  Cubillas Ding, December 8, 2014
Industry Trends
Latin America

Abstract

Celent expects Brazil’s financial services technology investments for risk management to hit US$1.3 billion in 2017, growing at a compound annual growth rate of 7.2%.

Within the Latin America region, Brazil is the largest and most developed market. It has seen both rapid growth and improvements in the infrastructure of its banking and capital markets. In recent years, however, growth has slowed, and its near-term prospects remain uncertain.

In the report Risk Management in Brazil: Strengthening Risk Operations in a Risk On, Risk Off Environment,  Celent analyses the financial sector’s IT spending and demand and supply dynamics that characterize risk management technology investments. This report also highlights imperatives for financial institutions seeking to rebuild a strong foundation for growth and for software/IT service providers looking to grow their presence in Brazil.

“Brazil’s financial services market is moving from a growth market into a market where real prospects will be harder to come by,” says Cubillas Ding, research director with Celent’s Securities & Investments practice and coauthor of the report. “This will require Brazilian financial institutions to build upon the right foundations to sustain a growth path, manage risk judiciously, and, especially for ambitious local champions, to lay sustainable foundations to play on the world stage.”

Celent expects the overall investments for risk management technology to hit US$1,293 million in 2017 at a CAGR of 7.2%. Demand for risk management technology will be shaped by regulatory pressures and business factors driving the evolution of more advanced risk management capabilities, for example, around consolidated risk data infrastructures, upgrades for internal risk models, Basel III liquidity risk reporting and ICAAP processes, advanced real time credit decision-making/scoring, and enterprisewide stress-testing.

“Despite the near-term headwinds, Brazil still promises attractive long-term opportunities for investors, financial institutions, and service providers, but there are important hurdles to overcome in order to weather the storm-like conditions ahead,” says Dennis Kong, an analyst with Celent’s Securities & Investments practice and coauthor of the report. 

Financial institutions will need to drive greater IT efficiencies, invest in next-generation risk IT infrastructures, and step up from a compliance mindset to demonstrate value for the business in their risk management activities. For service providers, localization of product and implementation capabilities, a nuanced approach to address client pain points in Brazil, and cost-effective delivery models are important factors to demonstrate value.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

Introduction

3

Market Fundamentals, Economic Challenges, and Business Dynamics

4

 

Overview of Brazil

4

 

Banking in Financial Services in Brazil

4

Factors Shaping Risk Technology Investments

7

 

Market Drivers in Brazil

7

IT Spending for Risk Management

11

 

Demand and Supply Dynamics

11

Looking Forward

13

 

Action Steps for Financial Institutions

13

 

Action Steps for Vendors

14

Conclusion

16

Appendix A

17

Appendix B

18

Leveraging Celent’s Expertise

19

 

Support for Financial Institutions

19

 

Support for Vendors

19

Related Celent Research

20

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