Colombia , Uruguay , Chile , Argentina , Paraguay and Brazil
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Itaú: Brazil’s H1 GDP could plummet 13.5% due to lockdown

Bnamericas Published: Monday, April 06, 2020
Itaú: Brazil’s H1 GDP could plummet 13.5% due to lockdown

Itaú Unibanco, Brazil's largest private sector bank, projects that the country’s economy may contract as much as 13.5% year-over-year in the first half if restrictions on the circulation of people, commerce and most productive activities to tackle COVID-19 remain in place until the end of May.

The forecasts were presented by bank executives in a webcast on Monday and consider different scenarios.

Even if the lockdowns remain in effect for just one more week, until April 14, the economy would contract 7.5% in H1. If, however, they continue until the end of April, GDP will shrink 8.5%.

Mario Mesquista, Itaú's chief economist, said a lasting lockdown will have a carry-over effect in the third quarter and impact the economy's capacity to recover.

Economists surveyed by the Brazilian central bank for its weekly survey, released on Monday, downgraded their projections for 2020 GDP growth for the eighth week in a row, to -1.18%, from -0.48% in the previous survey.

Most Brazilian states and municipalities see restrictions lasting at least until mid-April, but their flexibility will depend on how the pandemic unfolds. In São Paulo, governor João Dória announced the extension of state-wide quarantine to April 22.

According to Itaú, the outlook is still uncertain, but expectations are for a gradual recovery of the economy from April 20.

“These are admittedly exceptional times,” Itaú Unibanco CEO Candido Bracher said in the call.

Despite this, Bracher said the bank is well prepared for the crisis with measures it was already pushing forward, such as digitization.

“This crisis, unlike others, didn’t arise from the financial sector. The financial sector here will not be part of the problem, but part of the solution,” he said. “We have seen intense cooperation with our main private competitors, Bradesco and Santander, and have made proposals to the government to keep the economy running and for the resumption [of economic growth] to come quickly and efficiently.”

According to CFO Milton Maluhy Filho, the lender's liquidity is at “adequate” levels for times of crisis.

Across Latin America, Itáu's liquidity and capitalization levels are also adequate and compatible with each country’s needs, said Maluhy Filho.

The bank also operates in Argentina, Uruguay, Paraguay, Chile and Colombia.

The main challenges are being perceived in Colombia, Paraguay and Argentina, he said, where full quarantines are in place.

REMOTE WORK AND DIGITAL CHANNELS

Itaú reported a 50% increase in the use of its digital channels in March, compared to the same month last year.

André Sapoznik, executive VP for operations and IT, said the bank's network is "robust" and investments in technology in recent years enabled Itaú to adapt to the new reality of remote work very quickly.

Currently, 40,000 professionals are at home securely accessing the bank’s systems via VPNs [virtual private networks] each day. That compares to 400 accesses in early March. The network capacity is 90,000 accesses per day.

The bank's entire administrative and operational personnel are working at home.

According to Sapoznik, productivity has remained very high with the home office and in a post-COVID-19 scenario, remote work will likely be expanded. “But face-to-face physical contact is essential for project development,” he said.

“As soon as the crisis broke out, we redirected a large part of our investments in technology to adapt the bank's systems in order to be able to provide different services to our customers and digital applications. Some solutions were developed in a week, others in up to two days,” said Sapoznki.

One of these is a solution to allow payments to pensioners and retirees to be made at ATMs from the TecBan network. Depositing checks through apps, which was available to clients from premium Personalité line, was expanded to the rest of the bank's customers.

Marcio Schettini, Itau’s general director for the retail segment, said 97% of money transfers were made through digital channels in March. The opening of accounts via digital platforms grew 32% over February, and transactions related to personal credit by 42%. 

There was also a 49% increase in the use of WhatsApp for general consultations.

"We believe that after the crisis, people will be using digital channels more, which can impact the demand for brick and mortar branches," said Schettini. At the moment, however, the bank has no plans to accelerate the closure of branches.

LOAN PAYMENT REPROGRAMMING

The five largest banks in the country have to date processed more than 2mn requests to reprogram loan payments, giving a grace period of 2-3 months for installments in several lines, reported Brazil’s banking association Febraban.

The amount involved reaches 200bn reais (US$38.1bn) and more than half of that refers to Brazil’s state lender Caixa.

In the case of Itaú, 302,300 requests have been processed, totaling 12.1bn reais.

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