Latin America: NPLs point to credit quality recovery in Brazil
Private banks ahead of the curve in terms of provisioning; Banco do Brasil returns to double-digit ROE.
The Q1 2017 results of the Brazilian banks might mark the beginning of an inflection point for the country’s credit performance, according to Fitch Ratings.
The rating agency believes that the signs of stabilization of the banks’ non-performing loans (NPLs) in the first quarter of this year could be the beginning of a turnaround in the country’s hitherto long-deteriorating credit performance and depressed credit demand.
Data from the Brazilian central bank, published in May, show that the system’s NPL ratio increased only marginally (3.8% from 3.7%) in the three months to March 17. Meanwhile, early NPLs – those that are overdue for between 15 days and 90 days – actually declined, by 0.5 percentage points to 4.3%.
Raphael Nascimento, Fitch banking analyst in São Paulo, believes this second statistic “could indicate a broader turning point for the segment”. He also points out that the retail portfolio NPLs remained flat “which is notable as seasonal factors tend to weigh on this segment in the first quarter.
“NPL ratios are stabilizing at a time when loan portfolios continue to contract, meaning that the improvement is not due to an expansion in lending but to factors affecting the ratio’s remunerator.”