Contents

Introduction

The private banking system in Brazil should see more loans this year than last, the first time this will occur since 2014, thanks to an improvement of the labor market, the sharp decline in inflation and interest rates, and lower household debt.

However, we expect any change to be moderate given the slow recovery expected for corporate loans. Levels of idle capacity are still high, and the restructuring of company debts as Brazil recovers from a severe recession in 2015 and 2016 remain ongoing.

Banks will continue to be highly profitable, although there is growing pressure from the public and central bank authorities for loan rates to fall, in line with the slashing seen in the last 18 months of the Selic reference rate. Added to these tensions are political uncertainties ahead of the presidential elections on October 7, which may delay investment decisions.

In this report we will describe the banking system in Brazil in recent years and what to expect in 2018 and 2019. In addition, we will identify the drivers of banking and what factors could stymie growth. Finally, we will analyze the potential impacts of political tension and pre-electoral uncertainty.

Figure: Top Ten Banks by Assets
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