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Brazil’s banks see multiple drivers for 2018 growth

GDP and credit growth should offset lower NII; greater efficiencies also sought to preserve strong results.

As the Brazilian central bank nears the end of its cutting cycle – with the Selic (the Brazilian central bank’s overnight rate) predicted to be at or near 7% in the first quarter of 2018 – the focus for the improvement in the results of the country’s banks is set to switch to credit growth.

Brazil’s banks have been profiting from an improvement in the cost of the country’s risk, better economic prospects and reduced political noise.

Most have also been benefiting from the falling Selic as they run unhedged mismatches between loans and deposits, which have been boosting earnings in the short term. However, to continue improving earnings next year, the banks will have to compensate for lower net interest income with renewed growth in the loan portfolio, as well as deeper cost cutting.

“The timing and the magnitude of the credit recovery in Brazil is the main theme these days”
Marcelo Telles, Credit Suisse

“The timing and the magnitude of the credit recovery in Brazil is the main theme these days,” says Marcelo Telles, Credit Suisse’s equity analyst for Brazilian banks, who in October increased his forecasts for credit growth in the system to -1.1%

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