Faster lending seen as key for profitability at top Brazil banks
Brazil's major private sector banks should pursue more aggressive lending strategies in order to keep their profitability at high levels, according to rating agency Standard & Poor's.
In recent years, top private banks Itaú Unibanco, Bradesco and Santander Brasil assumed a conservative approach to lending given the country's weak economy. This in turn allowed the banks to reduce loan loss provisions and keep profitability at high levels.
"In the context of controlled asset quality metrics and stable provision costs, banks need stronger credit growth to improve profitability, but must grow credit at a pace that can compensate for lower margins caused by current interest rate levels and fierce competition," said Standard & Poor's.
"We believe the large private banks have the capacity to hasten the pace of loan growth next year if demand for credit accelerates and corporates return to the banking sector for lending. If credit growth in Brazil doesn't pick up, the banks will potentially need to revamp their cost structures and invest in ancillary services that could serve their vast client bases," the agency added.
The biggest private banks have announced plans to expand their loan portfolio this year amid the expectation of a stronger economic recovery. After growing an estimated 1.3% last year, the economy is expected to expand around 2.5% this year, according to local economists.
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