Excellent investment for the bank.
Ney Brito and Pedro Trengrouse*
Around the world, it's said that the house wins in gambling. In Brazil, it's different; the bank wins.
In 2016, lotteries raised R$ 12,8 billion, paid out R$ 4,3 billion in prizes, and transferred R$ 6,1 billion to the National Treasury Secretariat, Student Financing Fund, National Culture Fund, National Penitentiary Fund, National Health Fund, Brazilian Red Cross, National Federation of Associations of Parents and Friends of Exceptional Children, Ministry of Sports, Brazilian Olympic Committee, Brazilian Paralympic Committee, Brazilian Club Committee, National Confederation of Clubs, and football clubs.
Revenue from capitalization bonds was 67% higher, reaching R$ 21,4 billion, paying out only R$ 1 billion in premiums and generating a net profit of R$ 1,8 billion for 17 companies authorized by the Superintendence of Private Insurance and linked to banks: Aplicap, Aplub, Bradesco, Brasilcap, Caixa, Capemisa, Cardif, Itaú, Icatu, Invest, Kirton, Liderança, Mapfre, Porto Seguro, Santander, SulAmérica and Zurich Brasil.
Unfair competition. Lotteries require legislative authorization, make social contributions, pay out higher prizes, and are passively sold in only 14 lottery outlets. Capitalization bonds are offered actively and insistently in more than 23 agencies and almost 40 bank branches, pay out lower prizes, make no social contributions, and disregard Ministry of Finance Ordinance No. 41/08, which states in paragraph 1 of article 20 that operations linked to capitalization bonds require authorization under Law No. 5.768/71 and Decree No. 70.951/72.
Banks claim that capitalization bonds are a good investment. And they are, for the bank. The embedded lottery is used by the banks' sales machine as an additional incentive to a good investment, often sold in bundled transactions, omitting the possibility of significant losses due to interrupted payments and early redemptions, mainly affecting small savers. In 2016, banks' profits from these redemptions and reduced reserve requirements reached R$ 250 million.
Offering lottery tickets disguised as capitalization bonds is an attack on the popular economy, cannibalizes the national lottery market, and occurs without proper control due to the sector's outdated, obsolete, and confusing legislation. If the customer invests the same amount, buying Federal Lottery tickets themselves and depositing the remainder in a savings account, they will have better returns, liquidity, and at least the same chances of winning a prize.
In Brazil, gambling has a social purpose, and capitalization bonds need to be properly regulated. In this context, where Brazil needs to resume economic growth, revising the regulatory framework for gambling and lotteries is even more important for the productive arrangement and the distribution of national income.
(*) Ney Brito is a professor at UFRJ, and Pedro Trengrouse is a professor at FGV. The article above was published in the edition of O Globo this Sunday (July 30, 2017).
