Brazil’s banks trade on their strengths

Laurence Neville

December 03, 2008

After years of rapid expansion, Brazil’s banks are facing up to the challenges of tighter liquidity and slowing economic growth. But the government’s proactive approach is helping to reassure investors and observers about the banks’ stability and solvency while the banking system’s focus on its domestic market has spared it much of the contagion from dodgy assets now blighting many of its international counterparts.

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Banks trade on their strengths

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Real economy takes a hit

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Brazilian banks have enjoyed a fantastic backdrop for growth for the majority of the decade. On the back of historically strong commodity prices and increasing domestic consumption – as well as a stable macroeconomic framework – Brazil’s economy has enjoyed one of its most consistent ever periods of growth since 2002.

Now banks face a number of significant challenges. Economic growth is expected to decline in 2009 with consequences for the pace of credit growth to both consumers and corporates. Similarly, a prolonged slide in growth could increase loan losses and put pressure on bank capital levels. Finally – and most immediately – liquidity and access to funding have become a problem with potentially serious implications.

Nick Chamie, Head of Emerging Market Research, RBS Capital Markets

"There are undoubted strains in the Brazilian banking system," says Nick Chamie, head of emerging markets research at RBC Capital Markets. "Lending to customers is under pressure, not least because of the freeze in interbank markets.

Brazil’s banks trade on their strengths

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