Brazil banks in high organic-growth mode
Brazil's major banks are likely to focus on organic expansion, as the contraction of the volume of new loans during the aftermath of the 2015-16 recession has opened room to grow through existing networks now that the country's economy is improving.
After undertaking huge acquisitions in recent years, Brazil's largest private sector banks – Itaú Unibanco, Bradesco and Santander Brasil – are not expecting to venture into the M&A arena in the near future.
"We have no plans for major acquisitions this year," said Itaú Unibanco president Candido Bracher in a press conference this week. The bank is currently integrating the local assets of Citigroup, which it acquired in 2016, and awaiting regulatory approval of the acquisition of brokerage firm XP Investimentos, he added.
Meanwhile, the new president of Bradesco, Octavio de Lazari Junior, ruled out acquisitions in the region. "Our focus and commitment remains in Brazil," he said this week, after being named CEO effective March 12.
The executive highlighted that Bradesco has significant market scale in Brazil and that, after acquiring the Brazilian unit of HSBC in 2016, it will focus on organic expansion.
ROOM FOR GROWTH
Behind these strategies is the contraction of loans in recent years, which has provided room to expand using the banks' existing networks and clients basis. The local financial system saw lending shrink in 2017, but loan growth is set to return this year with the economic recovery. Loans totaled 3.09tn reais (US$976bn), down 0.6% from 2016, according to the central bank.
Corporate loans were down 7% while lending to consumers increased 5.6%.
The Brazilian economy recovered last year after two years of severe recession. GDP expanded at a projected level of 1% in 2017 and the finance ministry sees growth accelerating to 3% this year.
Meanwhile, Brazil's key interest rate is at a record low of 7% and inflation is below target – two factors that contribute to the more positive outlook for lending.
Itaú expects to grow its total loan portfolio 4% to 7% this year. By comparison, in 2017 its credit portfolio totaled 600bn reais, up just 0.3% from the prior year.
Bradesco, the second largest private sector bank, saw its credit portfolio contract 4.3% last year to 493bn reais. For 2018, it expects loan growth of 3% to 7%.
"In the last five years, banks cut their [new loans] guidance during the year and now we expect a more constructive 2018 guidance; and, perhaps, to see some upward revisions throughout the year due to more positive macroeconomic conditions," said the banking analyst team at BB Investimentos.
EXPANDING SERVICES AND PRODUCTS
Banks and insurers are also looking to expand services to existing clients. Bradesco Seguros is planning to be more aggressive with its product offering. "The reduction in interest rates in Brazil is positive for the country's economy, but in a scenario of low rates we have to work harder to produce more and gain scale," said Lazari Junior, who also heads Bradesco's insurance arm.
Bradesco Seguros' clients have an average of 1.6 products with the insurer, which is targeting an increase to two products. "We also want to offer more products in the pension segment and increase our digital footprint," said Lazari Junior, without provide further details.
The head of Santander Brasil, Sergio Rial, also highlighted in a recent interview that its focus this year will be on the expansion of retail operations, and seeking to increase products for existing clients.
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