Bank profitability should evolve moderately, says BC

The Central Bank said this Tuesday (9) that the profitability of banks in Brazil should evolve moderately in the coming periods after a rapid recovery in 2021.

In its Financial Stability Report, which takes into account data from the second half of last year, the BC showed that the system’s net income was BRL 132 billion in 2021, 49% higher than that recorded in 2020, the year with the impact of the Covid-19 on the economy, and 10% above that observed in 2019.

The value is the highest in the series started in 2014.

According to the document, the 2021 results of financial institutions were driven by growth in the interest margin, reduction in expenses with provisions and efficiency gains.

The return on equity of these companies ended 2021 at 15%, returning to 2019 levels. High.

“The system’s profitability should remain resilient, but profits tend to grow at a slower pace,” said the autarchy.

Last year marked the beginning of the BC’s aggressive monetary tightening cycle with the aim of containing inflation, with the basic rate going from 2% per year to 9.25% at the end of 2021.

With the resumption of activity after the cooling of the pandemic, the stock of credit grew 16.5% last year, while average interest rates jumped to 33.9% – they were at 25.5% at the end of 2020. The spread in free credit also increased in the year, from 20.9 percentage points in 2020 to 23.7 points.

For the monetary authority, the scenario for 2022 is of weaker economic activity, lower credit growth, an increase in delinquency to historical averages and higher funding and operating costs, elements that represent obstacles to the evolution of banks’ profitability.

The BC said that the credit margin was pressured by higher interest rates, but should benefit from concessions to higher interest rates and more profitable credit.

The document pointed out that after a period of retreat, banks’ expenses with net provisions stabilized at the pre-pandemic level and should not favor increased profitability.

In another factor, the BC said that service revenues from these institutions should grow less in 2022 because the improvement in economic activity should be weaker in the year.

No risk to stability

In the document, the BC reported that its analyzes indicate that there is no relevant risk to the country’s financial stability.

“Capital stress tests demonstrate that the banking system is prepared to face all simulated macroeconomic shocks,” he said, adding that the financial system maintains adequate provisions, in addition to comfortable capitalization and liquidity.

According to the analysis, the dynamics of companies in the country shows an improving economic and financial situation, bank credit growing above the pre-pandemic pace and falling risk materialization.

The monetary authority stressed that the high fiscal risk and the ongoing monetary tightening process continue to impact current financial conditions and, consequently, current and future economic activity.

The document showed that market confidence in financial stability remains high, although it has receded slightly.

“Financial institutions expressed concern about fiscal risk and domestic inflation, less confidence in the recovery of economic activity and a drop in willingness to take risks,” he said.