Brazil’s bullet-proof banks
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Brazil’s bullet-proof banks

Brazil’s banks stand firm against fintech’s rise.


As I approached the Brazilian banks’ recent report season, I was hoping to find a story through the lens of fintech. In the same way that astronomers look for evidence of planets by observing stars and watching for fluctuations in their brightness, could the country’s extraordinary fintech growth be witnessed by movement in Brazil’s big banks’ reported numbers?

The somewhat boring answer is: No, not really.

Even the somewhat inelegant proxy of fee data failed to reveal any gravitational pull from fintechs

Indeed, banks reported very sound results. In 2021, both Itaú and Bradesco posted a growth rate in loans well above the midpoint of their expectations for the year (23.2% and 18.3%, respectively). And there wasn't a flicker in the signal from the most important numbers – for example, Itaú’s reported return on equity of 20.9% for its Brazilian operations.

Even the somewhat inelegant proxy of fee data failed to reveal any gravitational pull from fintechs: Itaú grew fees and commissions by 5.8% in the year. Maybe that is a little below trend, but it isn't a flashing warning light.


It looks like 2022 is taking up where 2021 left off.

Central bank data showed that the total portfolio of loans by the main banks grew by 16% and the net interest margin grew by a whopping 50 basis points month on month, driven by rising rates and a shift in the loan portfolio to consumers – and further by consumers taking on more expensive, unsecured debt.

Credit card volumes increased by 43%, overdraft volumes by 33%, while personal loans grew 21%.

In its forward guidance to the market, Itaú expects its credit portfolio to expand 13% in Brazil, while Bradesco sees 12% (against the central bank’s forecast of 9% for the system). Meanwhile, nonperforming loans ticked up 20bp in the month.

Perhaps that is the story then, the canary in the coal mine? Deteriorating asset quality posing a risk to the banks' future earnings?

Well, no. Not really. The system NPL rate is now only at 2.5% – well below the average of 3.2% and, frankly, the spreads the banks get compensate for NPLs well north of that average result.

Parallel universes

The truth is that while the focus in Brazil has been on the movers and shakers – because they attract the eye – in reality the main story remains the same: Brazil’s big banks have massive market share and are very profitable. Santander recently increased its prices for auto loans by 250bp to 28.5% a year.

The rapid growth of the competition is not causing a rapid deterioration in their existing businesses – and anything other than a dramatic decline in the incumbents’ fortunes will mean they have time to transition to a digital model and embrace the efficiencies that brings.

Ultimately, that’s the real story: Brazil is a big enough market for multiple narratives to exist in parallel.

So, while some people think now is a good time to go short Brazil’s private banks, I would still be wary of placing such a trade. Staying long looks the place to be in Brazil.

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