November 21, 2012 / 3:30 PM / 5 years ago

STXNEWS LATAM-Brazil may seek lower commissions on some loans-Barclays

Brazil's government will likely put a cap on commissions paid on payroll-deductible loans, a move that would help end "a dysfunctional" system that misaligns business incentives for banks and loan brokers, Barclays analysts led by Fabio Zagatti wrote on Wednesday in a note to clients. Zagatti said, citing a report by newspaper Valor Econômico, that main changes could be a reduction in commission and fees paid to loan brokers for the origination of new payroll credit to as little as 10 percent from 15 percent currently.

Instead of being paid 100 percent upfront, those fees could be paid to loan brokers throughout the term of the loan, Zagatti said, citing the Valor report. "We agree with the view that the current model of high commissions paid upfront to loan brokers is dysfunctional and does not correctly align incentives of loan brokers with that of the banks, leading to unnecessary refinancing activity," he noted, adding that the competitive landscape in the segment should not change at all.

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