![Brazil-balloons-Sao-Paulo-R-780.jpg](https://assets.euromoneydigital.com/dims4/default/9fcd6dd/2147483647/strip/true/crop/780x520+0+0/resize/800x533!/quality/90/?url=http%3A%2F%2Feuromoney-brightspot.s3.amazonaws.com%2F8a%2Fc0%2Fbf4f8a0c3658a23b867f39caa66b%2Fbrazil-balloons-sao-paulo-r-780.jpg)
Brazilian banks fared very well during the country’s recession – little wonder, then, that analysts expect the cyclical recovery to power years of outperformance within emerging markets.
UBS’s financial analyst Philip Finch believes that a potent mix of stronger than-expected-loan growth, improving net interest margins (as the country’s base rate, Selic, rises), a falling cost of risk (if pensions reform is passed) and improved efficiency ratios from branch rationalization will improve the profitability of Brazil’s leading banks.
Philip Finch, UBS |
Floating all these specific boats is the cyclical recovery of the Brazilian economy that should come this year. These strong numbers are based on expected growth of 3% (rebounding from a small recovery of 1.5% in 2018 and 0.5% in 2017 and a deep recession between 2014 and 2016).
As Finch notes, pensions reform is the key variable. All of the projections of 3%-plus growth are based upon the new administration of president Jair Bolsonaro being able to pass meaningful reform – and there have been encouraging noises that the new administration is making this social security reform a priority.