Banco Bradesco SA is wary of granting loans as Brazil’s borrowing costs remain at the highest level in six years, with no easing cycle in sight.
(Bloomberg) — Banco Bradesco SA is wary of granting loans as Brazil’s borrowing costs remain at the highest level in six years, with no easing cycle in sight.
The second biggest bank in Brazil by market capitalization has been reassessing risk appetite since 2022, when it was hit by bad loans, CEO Octavio de Lazari Jr. said in a conference call on Friday.
“We are holding a much smaller level of risk by restricting the volume of credit operations,” Lazari said. “The moment requires caution.”
Bradesco’s caution is the latest sign of the effects that a tight monetary policy, combined with sticky inflation, has had on the Brazilian economy. As defaults rise, banks began to migrate to a more restrictive credit policy, focusing on reducing risks.
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The bank’s recurring net income dropped 37% in the first quarter in the yearly comparison, to 4.3 billion reais ($900 million). The results follow Santander Brasil’s report last month, showing a nearly 50% drop in profits. This is also a test of whether Latin American banks can weather the global financial crisis.
Bradesco’s total loan portfolio declined 1.4% in the first quarter, compared to the end of last year. Loans for companies fell 3.2%. The portfolio’s total delinquency increased to 5.1% from 4.3% in December. Small companies have been under the “greatest stress in Brazil,” Lazari said.
Brazil’s default cycle is edging closer to its peak, which will result in better earnings next quarter, according to Lazari. The bank prepared its provisions to handle even a lower-than-expected growth in Brazil, according to Lazari. The bank has also provisioned 4.9 billion reais to reflect the meltdown of local retailer Americanas SA.
“Selic rate cuts would slightly improve that scenario,” Lazari said in a call with analysts. The loans book would “grow naturally” with improvements in the outlook for the economy, he said.
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