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Banking

Brazil's banks prepare to fly in 2019

Multiple positive factors point to outperformance of Brazil’s banks in EM, but pensions reform risks remain.

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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.

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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.




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