NPL&REO News

Itau Unibanco set aside R$10.1 bn in provisions

Brazil’s largest lender, Itau Unibanco Holding SA, posted weaker-than-expected quarterly earnings after setting aside r$10.1 bn ($1.82 billion) in reserves in anticipation of a potential wave of coronavirus-led loan defaults.

Itau Unibanco’s first-quarter recurring net income, which excludes one-off items, fell 43.1% from a year earlier to R$3.912 bn ($706 million), and below an estimate by Refinitiv of r$6.242 bn ($1.13 billion).

The Sao Paulo-based bank’s loan-loss provisions almost tripled from a year earlier, according to a securities filing.

The bank’s management said in a statement that the outlook for both companies and consumers had deteriorated since mid-March, when the coronavirus outbreak started gaining momentum in Brazil.

Profit was also hit by lower trading gains and hedging, which came in down 38.9% year-on-year, at 760 million reais.

Itau’s return on equity fell to 12.8%, its lowest in at least the past five years. While Itau is normally the top ranked among Brazilian lenders according to the measure of profitability, it fell behind Santander Brasil in the latest quarter, as its rival decided to set aside less money for expected loan losses.

Itau’s core capital ratio also dropped to 10.3% from 13.2% in the previous quarter.

Its loan book was mainly boosted by corporate loans in the first quarter, as big companies have sought credit to strengthen their cash positions to help weather impacts stemming from the coronavirus pandemic.

The lender’s loan book grew by 8.9% from December, but excluding exchange rate fluctuation, it went up 2.7% in the quarter.

Its 90-day loan default rate was roughly stable at 3.1% in the first quarter.

In a move to help consumers and small companies cope with the coronavirus crisis, Itau is allowing clients to defer debt payments for up to six years.

Original Story: Reuters | Carolina Mandl 
Photo: Itaú website
Edition: Prime Yield

Bradesco set aside R$2.7 billion for expected Covid-19 related loan losses

Banco Bradesco SA is setting aside R$ 2.7 bn ($506.1 million) for expected COVID 19-related loan losses and may provision more in the coming months amid what its chief executive called a more severe crisis than previous ones.

“Our goal was to preserve the bank’s solidity to face future challenges,” Octavio de Lazari told. “This crisis now is more severe than the ones Brazil faced in 2008 and 2016,” he added, referring to the financial crisis and a severe domestic recession triggered by a bust in commodities prices.

Bradesco posted recurring net income, which excludes one-off items, of R$3.753 bn, down nearly 40% from a year earlier and below a Refinitiv estimate of R$5.975 bn.

Return on equity, meanwhile, dropped 9 percentage points from the previous quarter to 11.7% as a result of the higher provisions.

Preferred shares in Brazil’s second largest private-sector lender were down almost 6% in mid-morning trading.

“We see the result as negative due to the faster-than-expected deterioration in asset quality indicators,” analysts at Credit Suisse said in a note to clients, adding that provisions are likely to keep an upward trend.

The bank’s loan-loss provisions soared 86% from a year earlier to R$6.708 bn in expectation of higher loan delinquencies by consumers and companies struggling with the economic effects of the pandemic. Now it has a buffer of R$5.1 bn to face an adverse economic scenario.

Lazari said Bradesco is likely to give clients another 60-day debt payment forgiveness extension. Earlier in March, the bank had already cleared the way for borrowers to postpone instalment payments for two months.

Along with increasing provisions, the bank is also trying to tackle the crisis through cost-cutting. Bradesco intends to shut 78 more branches than it had predicted in the beginning of the year, totalling 378 units.

The lender scrapped its 2020 results outlook because of coronavirus-related uncertainty, and Lazari said he could not predict when the economy might recover.

The COVID-19 outbreak had only minor impact in Brazil until mid-March, so its impact on first-quarter banking operations has been limited.

Bradesco’s loan book grew by 5.1% from December, mainly through corporate loans, as large companies looked to bolster balance sheets ahead of an expected deep recession.

Lazari said that since mid-March the bank had extended R$57 bn in new loans, but that demand for credit was now slowing down.

Fee income rose 2.6% from a year earlier, on checking account and brokerage fees.

Original Story: Reuters |Carolina Mandl 
Photo: Bradesco website
Edition: Prime Yield

Banco do Brasil says it is much better placed to weather the coronavirus crisis

Banco do Brasil is much better placed to weather the economic storm caused by the global coronavirus pandemic than it was during the Brazilian recession of 2016, according to the bank’s CFO, Carlos Hamilton Vasconcelos Araújo.  

He told Euromoney that he expects the bank to be less negatively affected than Brazil’s large private-sector banks. 

«Our credit portfolio is more defensive than the banking industry average,» he says. «When compared to the system, we don’t expect the same impact in our portfolio.»

Hamilton says that it is still «too early to say how much NPLs [non-performing loans] could increase», but he points out that Banco do Brasil has low corporate exposure to the worst hit industry sectors. Lending to airlines and tourism companies is 0.5% and 0.04% of the total respectively.

The bank has also been skewing its corporate book towards quality agribusiness credits in recent years – and that is a sector that is expected to emerge relatively unscathed once the threat from Covid-19 recedes.

 «We have been closely monitoring the situation of the companies and we are ready to help in any way necessary, » says Hamilton. «We saw a reduction in concentration in specific segments and companies in the last two years due to the migration to capital markets. Today our portfolio is less concentrated than it was five years ago.» 

He says the bank is ready to support clients’ need for liquidity while corporate financing conditions normalize in the country: «It’s hard to be precise when the capital market will be opened again, but it is important to continue supporting the companies with the traditional credit until the uncertainties reduce and the environment becomes more beneficial

Hamilton is also confident about the quality of the bank’s SME book. «We have a good relationship with our SME clients,» he says. «More than 80% of them have more than five years of relationship with the bank… [and] they are companies with a better profile, since they have already survived the last crisis.»

Hamilton also points to the increased quality of its consumer portfolio as evidence for his forecast that the bank should suffer a lower-than-industry increase in delinquencies.

«Almost 90% of our individuals portfolio are civil servants, clients that have job stability… and one-third is payroll loans

According to BTG Pactual’s financial institution analyst Eduardo Rosman: «Only 5% [of Banco do Brasil’s consumer loan portfolio] is in higher risk personal credit» and he believes that the messaging coming out of the bank is «positive».

Proactive measures

However, despite the relative advantages Banco do Brasil had going into the crisis, Hamilton says it has been implementing the framework adopted by Febraban (Brazilian Federation of Banks) that gives small and medium-sized enterprises and individuals the option to extend installments falling due in the next 60 days.

«We have given SMEs the option to postpone working capital lines at this moment,» says Hamilton. «Customers can also adjust their financial commitments, through loans renegotiation, with a grace period for payment of the first installment between 60 and 180 days, depending on the loan line, and the payment term lengthening. This renegotiation process can also be contracted through digital channels.» 

Hamilton believes these proactive measures will limit the bank’s increase in NPLs, though «it is a fact that there might be some increase.»

As with NPLs, Hamilton says it is “too early” to evaluate the need to increase provisions, but he is confident they will be lower than the bank suffered in the last crisis.  

«We made a preventive reinforcement in provisions in the fourth quarter of 2019, mainly for the low-income mortgage segment, which should be one of the most affected in this scenario,» he says.

 «In addition, the midpoint of our guidance 2020 indicates a reduction of about 20% in net provisions, so even if there is a need to reinforce the provision throughout the year, we have room to absorb a certain volume»

 «The bank always adopted a forward vision perspective on risk management and has a very prudent view on provisions. Certainly, there will be impacts going forward, and there is space for making additional provisions if necessary.» 

Hamilton notes that the country’s solid banking system is a positive during a crisis, but he sees some risk from importing financial stress from abroad: «Despite great efforts by governments and central banks to guarantee liquidity to the market, the magnitude of the economic shock has the potential to spill over into the financial system».  

«Therefore, we list mainly the risk of a significant deterioration in the balance sheet of companies in the developed countries, which could fail to honour their debts. It should be noted that the high level of corporate leverage, in global terms, was already a relevant point of concern recently.»

He adds: «Therefore, an environment of sharp decline in activity, collapsing corporate revenues, could lead to a massive increase in corporate defaults on bank loans and debt securities, triggering a new global financial crisis». 

«It’s important to mention that the Brazilian companies are much less leveraged than those from the developed countries and, in particular, US and European companies

Original Story:Euromoney | Rob Dwyer 
Photo:
Site Banco Central do Brasil
Edition:
Prime Yield

Banks will have to suspend payroll loan payments for 4 months

A Brazilian federal judge ordered banks to suspend all payments due on payroll loans extended to retirees for four months, citing increased medical expenses due to the coronavirus pandemic.

Judge Renato Coelho Borelli said retirees should have a four-month grace period on loan payments. The decision may be appealed.

The judge also ruled that banks should not pay dividends above the minimum required by law, duplicating a measure already taken by Brazil’s central bank. 

Original Story: Reuters | Tatiana Bautzer
Photo: Photo by Bruno Neves for FreeImages.com
Edition: Prime Yield

Brazil’s bailout to airlines to be finalized in May

Government loans for Brazilian airlines battered by the coronavirus crisis would only be ready in May, and not later this month as some had hoped, two sources familiar with the matter told Reuters.

The loans have been publicly announced and are being coordinated by Brazil’s state development bank BNDES. Gol Linhas Aereas Inteligentes and Azul SA have confirmed the talks and suggested loans of around 3 billion reais ($569.10 million) per carrier.

The sources, speaking on condition of anonymity, said LATAM Airlines has also asked for help from BNDES. Gol, Azul and LATAM control virtually all of Brazil’s commercial passenger flights.

The sources added that the amounts requested by the airlines were higher than expected. BNDES has decided it will not rescue the airlines alone, the sources said, and is bringing private banks, debtholders and aircraft leasing companies to the table.

«We have received positive signs from the banks to renegotiate debts,» one of the sources said.

Airlines around Latin America are increasing pressure on their governments for state aid to weather the coronavirus crisis after the United States approved a $25 billion package for its national carriers, much of which is money that will not have to be repaid.

In order to receive the aid in Brazil, BNDES is requesting that airlines cut executive bonuses and investments as well as suspend dividends, the sources said.

The carriers «cannot assume that they will come out with no scratches or without some sacrifices from a crisis like this,» the second source said.

Original Story: The New York Times | Rodrigo Viga Gaier (Reuters) 
Photo: Photo by Cesar Fermino for FreeImages.com
Edition: Prime Yield

Brazil inflation rises more than expected in February

Brazilian consumer price inflation, as measured by the IPCA index, rose 0.25% in February, government statistics agency IBGE said, more than the 0.15% economists in a Reuters poll had expected.

Prices rose 4.01% in the 12 months through February, also more than the median forecast of 3.90%. 

Original Story: Reuters | Jamie McGeever
Photo: Photo by BrunoNeves in FreeImages.com
Edition: Prime Yield
 

Brazil Central Bank to step into markets again markets again to support real

Brazil’s central bank announced it will sell dollars in the spot market for a second day to support the real amid a rout in global assets.

After sold about $3.5 billion in two auctions on March 10th, the first such intervention this year, Policy makers decided to offer up to $2 billion in a spot auction on the next day. 

The central bank had been stepping into the foreign exchange markets only via swap auctions, of which it sold $9.5 billion in February in a bid to contain the volatility.

The change comes as the collapse in global markets triggered by a selloff in crude added pressure to the real, which was already the world’s worst currency. The real is down 15% this year as record low rates diminish its carry appeal and as disappointing economic data casts doubt on Brazil’s recovery.

On the morning of March 9th, the central bank pledged to continue intervening in the foreign exchange market with all instruments available and for as long as needed. The bank’s Monetary Policy Director Bruno Serra refrained from announcing a program to systematically sell dollars from Brazil’s foreign reserves, but said this doesn’t mean the central bank is stepping out of the market any time soon.

Original Story: Bloomberg |Luisa Leite 
Photo: Site Banco Central do Brasil
Edition: Prime Yield

Brazilian government lowers its 2020 GDP growth forecast

Brazil’s has just announced it lowered its 2020 gross domestic product growth forecast to 2.1% from 2.4%, citing the economic impact from the global coronavirus outbreak.

It also lowered its 2020 inflation outlook to 3.12% from 3.62%, and maintained its 2021, 2022, 2023 GDP growth forecasts at 2.5%, the Economy Ministry said.

Original Story: Reuters | Marcela Ayres/ Jamie McGeever 
Photo: Photo by Cesar Fermino in FreeImages.com
Edition: Prime Yield

Brazil Central Bank lowers banks’ reserve requirements

Brazil’s central bank announced it would lower banks’ reserve requirements on time deposits to 25% from 31%, starting on March 16, in a move that will free up an estimated R$49 billion of liquidity.

In June, the central bank cut the requirement to 31% from 33%, aiming to improve market efficiency. Economy Minister Paulo Guedes said last year up to R$100 billion could ultimately be released into the economy over time using that mechanism.

At the same time, the central bank also raised the share of short-term reserve requirements, a measure it said should lower the amount banks need to hold in high quality liquid assets by a further R$86 billion. The central bank said this should help reduce the overlap between the two instruments.

«Together, these two measures should mean that for every new deposit raised, the amount financial institutions have to put towards complying with these regulatory requirements should be reduced by an average of 8.5 %» the central bank said in a statement.

Banks must hold short-term assets in reserve in case they run into liquidity emergencies, while reserve requirements can be used to help set liquidity levels across the banking system and support broader financial stability, the central bank said.

Original Story: Reuters | Camila Moreira
Photo: Banco Central do Brasil Site
Edition: Prime Yield

Outstanding loans totalled R$3.5 trillion in January

The amount of outstanding loans in Brazil fell to 3.5 trillion reais ($787 billion) in January, marking a decline of 0.4% on the month and a rise of 7% from a year before, the central bank said.

Lending spreads widened on the month to 28.3% from a downwardly revised 27.9% in December, while the 90-day default ratio rose to 3.8% in January from 3.7% in December.

Original Story: Reuters | Jamie McGeever
Photo: Photo by Cesar Fermino for FreeImages.com
Edition: Prime Yield

90-day default ratio dipped to 3.7% in 2019

Bank lending and the financial health of borrowers in Brazil ended 2019 on a positive note, as default ratios and lending spreads fell against a backdrop of strong credit growth.

Central bank figures showed the amount of outstanding loans in Latin America’s largest economy rose to R$3.47 trillion in December, up 1.6% on the month and 6.5% from the year before, the second annual rise in a row.

The figures reflect growing demand for, and availability of, private-sector bank loans free of government influence, instead of credit provided by state-run entities.

Alberto Ramos, head of Latin American strategy at Goldman Sachs in New York, said continued and accelerating economic growth bodes well for the coming months.

«We expect credit conditions to improve … as credit risk moderates with the forecasted gradual economic recovery, and credit demand picks up supported by the forecasted gradual improvement of the labor market backdrop and further decline in rates,» he wrote in a note to clients.

Credit to individuals rose 11.7% last year, and corporate borrowing rose 0.2%, the central bank said, while loans from national development bank BNDES fell 13.9% last year.

Lending spreads fell sharply on the month to 28.5% from 30.6% in November, the lowest level last year, although that was still up from 27.8% a year earlier.

The 90-day default ratio dipped to 3.7% in December from 3.8% the month before, the lowest since the central bank’s series began in 2011.

Original Story: Reuters |Jamie McGeever and Marcela Ayres 
Photo:Photo by Bruno Neves for FreeImages.com
Edition: Prime Yield

Santander raises limit of real estate financing to 90% of value

In the midst of the rate war in Brazil’s mortgage market, Santander announced the raising of the financing limit to 90% of the property’s value, up from the previous 80% limit.

In the midst of the real estate financing rate dispute in the country, the bank chose to resort to a new weapon: the option of providing a lower down payment, thus becoming the only institution in Brazil to work with a minimum ten percent down payment.

The new ceiling is applied to the Constant Repayment System (SAC).

Original Story: The Rio Times|Richard Mann 
Photo: Photo by Svilen Milev /FreeImages.com
Edition: Prime Yield

Tokio Marine sets JV to expand into Brazilian mortgage and homeowners insurance market

Tokio Marine Holdings, Inc. has announced the execution of a definitive agreement between its subsidiary, Tokio Marine Seguradora S.A., and Caixa Seguridade Participações S.A, an insurance holding unit of Caixa Econômica Federal, to establish a joint venture insurer to underwrite mortgage and homeowners insurance.

Caixa Econômica Federal is a Brazilian state-owned bank and leading institution on the Brazilian mortgage industry, holding more than a 70% market share in the country’s mortgage loan market.

The definitive agreement between the two subsidiaries is expected to further diversify the operations of Tokio Marine Holdings through the expansion into the mortgage and homeowners sectors of the marketplace, both of which are growing. Tokio Marine Seguradora has been expanding its operations and at the same time improving its profitability and is now ranked 5th in terms of market share in the Brazilian auto market.

The establishment of the joint venture with Caixa is a continuation of Tokio Marine Group’s ambitions to expand in both mature and emerging markets through acquisitions and partnerships.

In terms of the structure of the joint venture, Caixa is set to establish a new insurance company and allocate new shares to Tokio Marine Seguradora equivalent to 50.1% of the insurer’s voting shares upon a capital contribution of approximately US$ 370 million (R$ 1.52 Bn).

The company name is yet to be determined as is the Chief Executive Officer (CEO). However, an overview of the joint venture at this stage reveals that its head office is expected to be in São Paulo, Brazil.

Original Story: Reinsurance News | Luke Gallin
Photo: Tokio Marine Seguradora
Edition: Prime Yield

Brazil’s Caixa gets ready for the IPO of its insurance unit

Brazilian state lender Caixa Economica Federal has chosen the bank syndicate that will manage the initial public offering (IPO) of its insurance unit, Reuters said.

According to the three sources with knowledge of the matter listened by the news agency, Morgan Stanley will lead a 10-bank syndicate including the investment banking units of Banco Bradesco SA, Itau Unibanco Holding SA, Banco Plural, Banco BTG Pactual, Banco do Brasil SA, Credit Suisse AG, Banco Santander Brasil SA, Bank of America and Caixa Economica Federal.

Insurance unit Caixa Seguridade will be listed in Brazil, although the banks expect to market the offering in the United States also. The banks expect to value it at around R$60 Bn ($14.77Bn), the sources said.

Caixa Economica Federal did not reply to a request for immediate comment.

Caixa plans to sell a stake of about R$10 Bn [$2.5 billion] in the insurer. Caixa Seguridade will not raise cash by issuing new shares, the sources said.

Caixa CEO Pedro Guimaraes wants an IPO in the short term, in March or April, but Caixa Seguridade still needs to sign agreements with private insurers to sell different kinds of insurance to its clients.

On January 5th, Caixa announced an agreement with Japan’s Tokio Marine to sell home insurance to its clients. Tokio Marine will pay R$ 1.5 Bn to Caixa.

Caixa Seguridade posted a net income of R$1.2 Bn for the first nine months of 2019.

Original Story: Insurance Jornal |  Carolina Mandl 
Photo: Caixa Economica Federal
Edition: Prime Yield

Banks project growth for Brazil’s economy

Economists and financial institutions consulted by the country’s Central Bank estimate that the Brazilian economy should have ended 2019 with a growth of 1.17%. As for 2020, the projection is for a 2.30% Gross Domestic Product (GDP) expansion.

As to inflation, the estimate for the Extended National Consumer Price Index (IPCA) increased for the eighth time running, to 4.04% in 2019. For 2020, the inflation estimate increased to 3.61%. The projection for the following years remains at 3.75% for 2021 and 3.50% for 2022.

The benchmark interest rate, known as Selic, is currently at 4.5% per annum designed by the Monetary Policy Committee (Copom) and, according to the financial institutions, should remain at this level until the end of the year. The institutions estimate that Selic will end 2021 at 6.38% per annum. As for the end of 2022, the projection remains at 6.5% per annum. 

Original Story: Brazilian Arab News Agency |Agência Brasil 
Photo: Photo by Bruno Leiva /FreeImages.com
Edition: Prime Yield

Santander Brazil takes full stake of Banco Olé

Santander Brazil closed the agreement to buy the remaining 40% of Olé Bonsucesso Consignado SA for €355 million. The Brazilian subsidiary of Santander will have 100% control of the company’s share capital, according to a statement sent to the Sao Paulo Stock Exchange.

«By fully assuming the control of Olé Consignado, we have a great opportunity ahead of us to boost our growth in the Brazilian market,» said the executive vice president and chief financial officer of Santander Brasil, Ángel Santodomingo.

Banco Olé specializes in consigned credit – loans whose fees are deducted from the payroll – and the operation depends on the approval of the corresponding competition authorities. Banco Santander obtains in Brazil about 30% of the group’s total profit, its largest market, with 3,680 branches and about 50,000 employees.

Santander Brasil and Banco Bonsucesso agreed on a joint venture in 2015, with stakes of 60% and 40%respectively.

Original Story: The Corner | News 
Photo: Santander
Edition: Prime Yield

Brazil’s Government proposed central bank bill to gird against banking crises

On December 23rd Brazil’s government sent Congress a bill designed by the central bank to regulate financial firms during a banking crisis that mandates the use of public money for bailouts, but only as a last resort.

If approved, the bill would create two new mechanisms that would dictate how different financial firms would be treated.

The first – the so-called Stabilization Regime – is aimed at larger banks that pose a risk to the country’s banking system, but will require specific secondary legislation to dictate how firms are chosen.

The second, known as the Compulsory Settlement Regime, would be aimed at smaller entities and focus on removing the company’s senior managers and board. The company and shareholders’ money would be prioritized in the case of any losses.

Failing that, losses would aim to be covered by the industry itself, with contributions from other banks to an emergency fund known as the Credit Guarantee Fund.

Only as a last resort would the government step in and provide a publicly funded bail-out, according to the bill.

Brazil’s Fiscal Responsibility Law currently bars the government from bailing out banks, although specific laws can be passed during times of financial crisis to circumvent the law and provide public assistance.

The latest bill aims to modernize the Brazilian government’s actions during a banking crisis and place greater responsibility on the banks themselves to cover their losses, meaning less of a burden on Brazilian taxpayers, said Climerio Leite Pereira, the head of the central bank’s resolution and sanctions department.

Original Story: Investing.com | Reuters 
Photo: Photo by Cesar Fermino /FreeImages.com
Edition: Prime Yield

Brazil’s Economic recovery boost stronger loan demand in 2020

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

BRAZIL Brazil’s economy’s benchmark interest rate hits a 30-year low

On December 11, 2019, the Brazilian Central Bank lowered the economy’s benchmark interest rate — for the fourth consecutive time. Its committee unanimously decided to reduce the Selic rate to 4.5% a year, a 0.5% percentage point cut. The move had been expected by analysts.

The benchmark interest rate is used in the negotiation of bonds in the country’s Special Clearance and Escrow (Selic) system and provides a gauge for other interest rates in the economy. It is also the central bank’s main tool to curb official inflation (Broad Consumer Price Index, i.e., IPCA).

The decision brings Selic to its lowest level since this time series was initiated by the Central Bank, in 1986.

In a statement, the bank’s Monetary Policy Committee, or Copom, said it will act cautiously and keep the rate at 4.5% a year for a long period, never failing to assess the economy’s conditions. The financial institution stressed the need to continue the structural reforms in the Brazilian economy so the rate may stay low for long.

The Selic’s historic low comes as unemployment is slowly coming down, economists are raising their growth forecasts for this year and 2020, and the outlook is for inflation to remain under control.

Many economists nevertheless expect the central bank will keep the Selic on hold at its next meeting, on February 5 (2020), while watching out for price pressures such as a recent surge in meat prices caused by higher demand in China, a major importer of Brazilian food commodities.

Original Story: Indrastra | News 
Photo: Banco Central do Brasil site
Edition: Prime Yield

Brazil’s private sector banks are firmly in ‘risk-on’ mode

Brazil’s private sector banks are firmly in ‘risk-on’ mode, after the third-quarter reporting season.

The economy is expected to grow GDP a little under 1% this year, but the banks are anticipating stronger growth to come and are ramping-up their credit portfolios to retain – or even gain – market share. 

Amid many eye-catching statistics, one highlight was the fact that Itaú overtook state-controlled Banco do Brasil in terms of its credit portfolio: Itaú grew its total credit by 8.27% to R$688.9 billion, just ahead of Banco do Brasil’s R$686.7 billion. Analysts expect Itaú to extend this newly claimed leadership in the quarters ahead, as Banco do Brasil continues to focus on profitability. The bank increased its return on equity (ROE) to 18.0% in the third quarter by de-risking its loan book, which fell by 0.68% in the quarter.

Meanwhile, the other private sector banks were also aggressively extending loans. Bradesco – the second-largest bank in terms of assets and deposits – grew the most, with a double-digit increase in its credit portfolio (10.49%).

Bradesco outgrew Santander Brazil (which grew credit by 7.35%), but remains less profitable: with an ROE of 20.2% (up from 19.0% 3Q18), compared with Santander Brasil’s ROE of 21.1% (up from 19.5%). 

As well as becoming the largest bank, Itaú also continues to skew its portfolio to higher margin business – the fall in the country’s interest rate makes corporate loans less attractive to both the banks and the companies, with domestic capital markets issuance booming.

Itaú grew its loans to individuals and small and medium-sized enterprises (SMEs) by 17.3% year on year, which helped net interest income (NII) to expanded 9% year on year. This growth in the risker, unsecured segments of consumer banking is notable for Itaú.

In recent years, the bank has been the most conservative in the system – in some calls, analysts have been actively advocating for the bank to increase its risk appetite. Now it seems management is prepared to add that risk. 

Candido Bracher, CEO of Itaú, conceded on the analyst conference call that «we have been growing more in credit card loans and personal loans than in mortgage, vehicle or payroll loansThis, I think, is one of the reasons behind the mild increase in NPL 90 in individuals’ portfolio [NPLs in the individuals segment moved up 20 basis points to 4.7% in Brazil]».

Original Story: Euromoney | Rob Dawyer 
Photo: Santander Site
Edition: Prime Yield

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