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Brazil banks ready for latest stress test

Previous crises led to consolidated, profitable sector that should be able to weather coming storm.

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The financial fallout from the coronavirus in emerging markets is hitting Brazil hard, but the solidity – and profitability – of its banking sector is helping alleviate the pain.

A recent report from Goldman Sachs highlighted the extent of Brazil’s financial exposure to Covid-19: Brazil has seen its equity markets sell off more than any other large country and the real has also been one of the worst-performing currencies.

However, the country’s banking sector looks set to withstand this latest crisis.

Large banks in Brazil may have several flaws... But there is one thing nobody can deny – they are rock-solid - Eduardo Rosman, BTG Pactual

A report from BTG Pactual highlights the positive aspects of having a consolidated banking system – it increases ease of coordination and regulation during crises and tends towards strong profitability of those players during good times and bad.

“Over the years, banks faced hyperinflation, price freezes and the Collor Plan, which hijacked savings accounts,” argues Eduardo Rosman, financial institutions analyst at BTG Pactual. “They survived the Lehman bust in 2008 and the largest corporate crisis in Brazil’s history in 2015/16 without many bruises.

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