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 loans. This, 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