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Banks’ profits rise, but inflation is still obstacle

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Vincent

High inflation and interest rates are a bad combination for economic activity and, thus, for banks, which see the demand for credit decrease and defaults increase.The rise in the Selic, Brazil’s benchmark interest rate, helps to recompose spreads, which were quite tight after Brazil’s benchmark interest rate fell to 2%, the lowest level ever, while inflation "swells" portfolios, giving the impression of a more robust growth than it actually is. On the other hand, the banks face a herculean job to contain expenses and, even though they pass on a good part of the costs to clients, fee income is not reacting so well.The profit of the five largest banks in the country - Itaú, Caixa Econômica Federal, Banco do Brasil, Bradesco and Santander - increased 9.6% in the first quarter of this year when compared to the same period last year, to R$27.342 billion. The result was higher than the average projections of analysts consulted by Valor for public lenders, of 8% growth. The highlight of the quarter was credit, with an annual increase of 13.46% in the combined portfolio, to R$4.16 trillion. The financial margin grew less - 5.2% - because a higher Selic increases the cost of funding.Meanwhile, there was a leap in expenses with provisions for doubtful debts (PDD), which advanced 37.6%, indicating the option for riskier lines (with higher spreads) and a more uncertain environment, in general - banks usually raise rates to offset the risk of default, which is on the rise. Private-sector banks foresaw that defaults would return to pre-pandemic levels by the end of the year, but this happened faster than expected. Even so, they see some stabilization in the second half of the year and do not expect anything like the peaks seen in past crises.BB and Caixa, on the other hand, have a slightly different dynamic. With very large agribusiness and real estate portfolios, respectively, they have a good part of their portfolios with guarantees and a lower default rate than competitors. They also offered more breaks on customer payments during the pandemic than their private-sector rivals, and so defaults are still considerably lower than they were before the coronavirus pandemic.Outside of credit, service revenues rose 6.7%, below the period’s inflation of 11.3%. Some segments have shown better results...

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