Brazilian banks are defying global trends by posting healthy increases in profitability and by oozing confidence about their long-term future. Bradesco and Itaú, the two leading private-sector banks, have shot past many large European and US counterparts in market capitalisation, and are rapidly growing credit portfolios just as the rest of the world frets over how to shrink their exposure to borrowers. Still, in the near-term, higher interest rates are set to challenge the new model, threatening to choke longer-term lending and cut off cheaper funding sources.

Marcelo Cypriano, president of Bradesco, paints a picture of rude health. In a sign of long-term confidence, Bradesco is opening 194 branches this year, up from 140-150 last year, as well as increasing points of sale in a hodge-podge of outlets, such as supermarkets and pharmacies.