Last week we received here the Minister of Finance, Fernando Haddad, and among various topics he commented on the Central Bank's interest rate. I was even joking backstage with you about what you miss most, what you don't miss from the Central Bank. But we saw many criticisms during your tenure from the Lula government because you didn't cut interest rates. We're not seeing that happen under President Gabriel Galípolo's management. And Haddad here last week said he considers the Central Bank of Brazil one of the toughest in the world. How do you evaluate that statement?
Look, that part I don't miss, saying that. I think it's part of the Central Bank's job to be tough. I think the Central Bank of Brazil has adopted higher rates, but that's not the cause, it's a consequence. It's a consequence of higher fiscal uncertainty. When we think that this year Brazil's gross debt will grow around 4.5%, that's very high growth. People look ahead and look at what the fiscal framework is and what the fiscal situation is and what's outside the fiscal framework. And the other day I saw you talked about this on the program, that in the end people start looking not at the fiscal framework anymore but at what the gross debt trajectory is over time. And since it's rising 4%, 4.5%, and it's difficult, even if there's a small drop in rates, it's difficult to reverse that much, so the other side of that is a higher interest rate. In the end, when the government owes a lot, it competes for the same resources. When it competes for the same resources, you end up having pressure on the Central Bank to work with somewhat higher rates. So I would be doing the same thing Gabriel is doing. I have no criticism of the work that's been done. I imagine at some point there will be room for a rate cut. I don't imagine it will be a very large cut, because to have a very large rate cut, a cut that changes the rate level, you need to have a perception of a change in the level, of long-term debt convergence. I don't see that happening at the moment.
You didn't hear any... I won't move on to Thomas, but just so we don't lose this, during your tenure, at no point did you look and say: 'Hmm, I think we could have cut here'? When you do this analysis of how the last year was especially, don't you think that was the moment of most pressure? You don't think you could have done things differently?
Look, we do the work with the information we have at the moment. So often later when you have much more information, you look back and say: 'Look, if I had today's information at that moment, I would have done things differently.' The pandemic was a clear example, where we were cutting rates, the world thought there would be a very large depression. The depression turned into a small recession in some cases. And obviously, looking back, if I had the information that the recovery would be so strong, we probably would have done things differently. But what's important is that we always justify what we did with the information we have at the moment. And there are types of errors too. Every Central Bank thinks: 'Well, I can err on the high side, err on the low side.' There are moments when if you err on the wrong side, the consequence is much worse. So, we're entering a pandemic, you cut rates, if you cut a little too much, you later raise them again. If you didn't cut enough and we enter a very large depression, it's much harder to fix later. So, at each moment in time, the central banker looks at this and thinks: 'What are the two types of errors I can commit? What is less harmful to society in the medium term?' That's also taken into consideration.
Yes. So, I was going to say two things going forward. You said that you basically agree with the current management's interest rate evolution. You said you foresee a rate cut at some point. First, I think the question of 10 out of 10 bankers today is when would this cycle start. And the second thing is you mentioned the fiscal framework issue. Do you think the fiscal situation will force a revision of the fiscal framework in '27, '28, at some point?
First, regarding the interest rate, I think it seems like there's room opening for a cut. I understand the cut will be small. 2027 is an election year, there will be... sorry, 2026 is an election year, there will be a lot of uncertainty around the elections, volatility. And with a lot of volatility, it becomes much harder to make a more prolonged rate cut move. I think looking at inflation and activity data, it seems at some point there could be room for a small cut, but I don't think that will change Brazil's debt trajectory. What will change Brazil's debt trajectory is if we have a credibility shock that makes the long curve fall a lot, opening room for a more significant rate cut. And that's what will make the economy machine start turning on its own, more on the private side. But this shock, this shock is a new fiscal framework. Regarding the fiscal side, I think regardless of the government, we will face a situation where we'll need to deliver a positive credibility shock. I've been saying this for a long time. The question is what point will force it? What reason will force you to do this positive credibility shock? We can proactively say: 'Look, we're heading toward an unsustainable debt trajectory' and do a positive shock. Or we can be forced by market reasons, by non-linear movements in the exchange rate, in the interest rate, to say: 'Look, we've reached a critical situation like Argentina and we'll have to do a fiscal revision plan here to show economic agents that we're going to pursue debt convergence.' I think both sides are possible. In economics, the more proactive you are, meaning the earlier you act, the lower the cost to society. So I hope it's done as quickly as possible, but the country can't live with a gross debt that grows 4.5% per year.
And regarding the rate cut, I'm on the other side, I'm on the wall side. I think they're doing a good job, so it's difficult. And when you're at the Central Bank, the thing you hate most is someone from the other side giving their opinion. But I think the scenario has improved, improved a little.
I think they're sending a tough message with reason. There are uncertainties in '26 because there could be a lot of volatility. So I think they have to test slowly, but again, that's not what will make us change levels at this moment. It's not cutting rates 2%, 2.5% or raising them. That won't change the Brazilian reality. The Brazilian reality is we have a problem where there's no fiscal credibility and long-term interest rates are very high. When the government issues a real interest rate bond at 8%, that has nothing to do with Brazil's short-term monetary policy. What's behind that is people saying: 'Look, I don't trust your credibility to pay me in the long term.' So we have to attack that point.
So, let's go. You have the view that the future government, whoever it is, will have to do a fiscal shock. At the same time, you defend a minimum rate of 17.5% for financial institutions. Shouldn't it be higher, since the country needs a fiscal shock? That's one question. Remembering that you're now working in the fintech sector. Febraban itself says that fintechs are privileged. Why? Because they say fintechs provide little credit and the little credit they do provide, compared to big banks, they charge high rates. Then Febraban says that 95% of fintech portfolios are concentrated in credit cards and personal loans, more expensive lines for borrowers. In other words, Febraban says you're benefited, the sector is benefited with low taxes, deregulation, and only operate in the premium segment. They don't, for example, invest in mortgage financing, vehicle financing, agribusiness credit or corporate credit. What numbers would you have to refute that?
Look, I think that's a rather fanciful version. If we think about what the Central Bank has done, what Brazil has achieved in recent years, what we generated was an increase in the number of accounts from 80 million to 160 million in the last 5 years. We generated a bankarization of approximately 50 million people. In terms of legal entities, it went from 3.5 million to 14 million. And when we look at what fintechs represented in this bankarization movement, they had a very large representation. The bank where I work, of the 50 million who were bankarized, 28 million are at that bank. Bankarizing a client, starting to serve someone who never had a bank account, is far from being the premium segment. It's a very difficult task, because it's someone with no credit history, someone who never participated in the credit world. When we think about competition, if we add S3, S4 and S5, we have a deconcentration, which is something that every time I went to Congress, someone complained: 'Look, the system is too concentrated, something must be done.' So if we think S3, S4 and S5, we went from 12% for that group of banks to 27%. When we think about credit cards, a concentration among the four largest banks of 82%, today it's 57%. We talk about access costs. It's worth mentioning the fee issue. The average fintech fee is R$2.5. The average large bank fee is R$85. We're talking about 34 times more. In other words, large banks charge 34 times more in fees than small banks. When we think about efficiency, there's a recent FGV study that came out two weeks ago showing that fintechs reduced rates by 2.9% and net margins by 1.3%. When we think about customer satisfaction index, which is the most important, fintechs have very good results in that regard. And when we think about taxes, finally, which I think is the allegation being used, the tax isn't just CSLL. The tax is you take everything you earned, all the taxes you pay, all the deductions you have, find a result and what tax you pay on that. When we analyze these numbers, we see that in 2023 fintechs were 36.5%, banks were 8.9%. And in 2024 fintechs were 29.7% and banks were 12.2%. So what I proposed is actually very much in line with what Minister Haddad had proposed for individuals. Since there are many discounts, a lot of tax planning that's done, let's do the following: let's set a minimum rate for everyone and then yes, if the big banks have many discounts, they have to pay that minimum rate. That's fair, because in the end we're talking about the effective tax that's paid. So I'm not saying anything very different. This argument doesn't have any objective of addressing the fiscal theme. It's just saying: 'Look, you can't compare different things. Let's compare a tax that's actually paid. And let's look at the last two years, fintechs paid much more tax on their results than banks. So let's set a minimum barrier. Take the tax, remove all discounts, and let's set it equal for everyone.' What fintechs want is to pay equally. Now they're already paying more, and they want to increase taxes even more. I think that goes against the message we're trying to send, which is that we want to bankarize people, we want to bring banking to where people are, where there are no banks. When we look at remote areas of Brazil, when we look at the poorest population, the poorest population today has fintech accounts. So I think it's important to put all this in perspective. Sorry for the long answer.
No, I agree, I agree with the bankarization that fintechs have done, and that Pix became the currency of informality in this country. You go to the beach, you only pay, only buy ice cream and polvilho crackers if there's Pix. But what the banks are saying isn't about the benefits fintechs brought, it's about the lack of competitive parity. There's this lack of parity because you're less regulated. And to end, with less regulation, for example, there was a Receita Federal operation that discovered a fintech involved in crime. That's bad for the sector, I imagine it's terrible for the bank you work for, because you end up generalizing and thinking that fintechs can work for crime, etc. So, these two aspects, the competitive parity in the fight with big banks and the second issue, how to prevent fintechs from working for organized crime?
