Brazilian banks have outperformed this year

State-run Banco do Brasil stands to gain the most from hopes of an improving macro and political outlook in Brazil, according to Deutsche Bank.

"We think Banco do Brasil has the most to gain from a potentially less interventionist government that can allow it to execute on its capital plan and avoid having to issue shares," said Deutsche Bank analyst Tito Labarta in a research note. "It also still trades at a significant discount to private sector peers."

The stocks of Brazilian banks have already outperformed this year compared to last year (up 70% vs 59% for the Ibovespa index), Labarta noted.

There is still plenty to be done to improve the macroeconomic and political situation, but banks could begin to see a recovery by the end of the year or early 2017, said the Deutsche Bank analyst.

Labarta sees a modest recovery as possible in 2017, with net income growing at an average of 10% while Banco do Brasil could see a 12% boost to its net earnings.

Deutsche Bank expects bank earnings to drop 9% on average this year and Banco do Brasil's earnings to decline 15% due to lack of loan growth and higher provisions.