Brazil’s biggest banks face cost-cutting challenge
Report says they must cut costs by 10%; years of 20%+ ROE are coming to an end.
Brazil’s five largest banks need to cut costs by a combined minimum of R$24 billion ($5.7 billion) in the next three years as lower interest rates put pressure on net interest margins, according to a report by the German consultancy Roland Berger. A cut of that magnitude would be equivalent to roughly a 10% reduction in today’s costs among these banks.
The study defines the country’s leading banks as private-sector leaders Itaú, Bradesco and Santander Brasil, combined with public banks Banco do Brasil and Caixa.
The report also warns that, as a group, these banks may have to cut costs further if increased competition in the sector exacerbates the effect of the lower interest rate environment and lowers the ‘spread bancario’ by two percentage points over those three years (as opposed to the report’s base case of 1.5 percentage points). In this scenario the total savings would need to be between R$34 billion and R$40 billion.
“The [Brazilian] banks need to start a new wave of efficiency,” says António Bernardo, managing partner and regional head for Latin America at Roland Berger.