© The Financial Times Ltd 2015 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
April 22, 2013 8:32 pm
The great Brazilian growth story is not what it once was. Last year, the economy grew less than 1 per cent. That compares with 7.5 per cent in 2010. Year to date, Brazil’s Bovespa stock index has slumped 11 per cent. In April, the central bank increased the benchmark Selic interest rate by 25 basis points, to 7.5 per cent, in the hopes of stemming surging inflation, after nearly two years of easier monetary policy. There is, in short, no shortage of things to worry about. Uncertainty about the country’s banks is on the list.
No matter the location, a stumbling economy can mean the unsettling combination of declines in growth and decreasing credit quality. Take Banco Bradesco, one of the country’s largest banks not owned by the government. On Monday, Bradesco reported that interest margins fell to 7.2 per cent in the first quarter. That marked the fourth consecutive quarterly decline. Loan growth is much lower than it was just a few years ago.
But on the plus side, asset quality looks to be stabilising and the bank has performed well on costs. At 4 per cent, the proportion of loans that are more than 90 days delinquent is up from 3.6 per cent two year ago, but largely flat over the last couple of quarters. Administrative and personnel costs fell 6 per cent versus the last quarter. Bradesco is also well-capitalised. And, return on equity, while it has been in decline, is still a stout 19.5 per cent (what a US or European bank wouldn’t give for that).
Bradesco could get some reprieve on margins this year from the central bank’s rate rise, particularly if it is followed by others. The risk is that sluggish economic growth keeps loan growth and higher rates in check. Bradesco management has shown some acumen. But the bank’s biggest problem is Brazil itself, which is a tougher nut to crack.
Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.