The expected economic recovery in Brazil is set to drive stronger loan growth next year but banks are likely to see their profitability under pressure due to fiercer competition from fintechs.

After an expansion of around 1% in 2019, Latin America’s biggest economy is expected to grow almost 2.5% in 2020.

Loans could grow 8.2% compared to an estimated 6.6% in 2019, according to a survey from local banking federation Febraban. 

This year’s expansion is likely to be driven by commercial banks, while development bank BNDES is expected to take a more conservative approach in terms of subsidized loans.

Loans from commercial banks are projected to grow 12.3% in 2020, while subsidized loans are expected to increase 2.5%. 

The government and the central bank are embarked on a strategy to reduce high concentration in the banking industry by making it easier for fintechs to enter the market. 

The five largest banks, Banco do Brasil, Caixa Econômica Federal, Itaú Unibanco, Bradesco and Santander Brasil, command nearly 80% of all loans in the country. 

In a recent interview, the CEO of Bradesco, Octavio de Lazari Junior, said that the era of «stratospheric gains» are over for Brazilian banks as interest rates have fallen to record-low levels and fintech competition is escalating. 

Brazil’s Selic base interest rate is at 4.5%, the lowest level ever, and banks can no longer park large portions of reserves in government bonds and obtain high returns as they did for years when the Selic was in double-digit territory.

Real Estate segment shines bright

The rapid growth of fintechs have put banks under pressure in several market segments but they still reign supreme in terms of mortgage lending. 

Loans for the purchase and the construction of homes with funds from Brazil’s saving and loan system (SBPE) has shown strong growth this year.

SBPE-based mortgage financing totaled R$ 70.0Bn reais at the end of November, up 36.4% year-on-year, according to Brazilian real estate loan and saving association Abecip.

In the period, 266,290 homes were financed compared to 204,940 units in the previous 12-month period.

The segment is attractive for banks as the long-term mortgage loans carry low default risk and give banks ample opportunities to cross-sell other products and services.

Original Story: Bnamericas |News 
Photo: Photo by Bruno Neves /FreeImages.com
Edition: Prime Yield