Banks more optimistic about 2024 after troubled year
The year 2023 ended better than it started for large Brazilian banks. After a tough first half of the year, with the Americanas case leading to multi-billion bad debt provision and a tight credit environment bringing the risk of a widespread crisis, signs of recovery are becoming clearer in recent months. Despite a weaker economic activity, 2024 shows better prospects for banks, with falling interest rates, controlled inflation, and projections pointing to a recovery in capital markets.Itaú Unibanco, Bradesco, Banco do Brasil (BB), and Santander totaled combined earnings of R$96.9 billion in 2023, an increase of 0.6% for the year. The slight increase was a good result compared to the 7.3% decline in the combined outcome for the previous year, when part of the charges for loan losses due to the Americanas crisis were made.The numbers should be put into perspective, as Santander and Bradesco saw lower profits, while Itaú and BB posted better results. Despite differences, there are some common trends.One of them shows that default took longer than expected to be resolved, but it has started to improve. "We can clearly say we have finally managed delinquency," said Marcelo Noronha, CEO of Bradesco, the bank that struggled the most in taming default rates, on Wednesday (7).The result was achieved at the cost of greater restrictions in extending credit. The combined loan and financing portfolio of the big four increased 4.9% last year, to R$3.8 trillion, below the broader market. That, combined with the change in the mix—towards safer products and, consequently, with lower interest rates—led to the increase in gross financial margin (before charges for loan losses) of 11.5%, to R$316.9 billion. In that line, Bradesco and Santander were also affected by the margin of market operations, which reflects treasury, as well as asset and liability management. For the two banks, that indicator remained negative for much of the year as a result of monetary tightening in Brazil.At the same time, the slowdown in riskier products, especially credit cards, put pressure on banks’ fee income. They were already in a tough situation of increased competition, regulatory changes, and technological advances, such as the instant-payment system Pix and open finance. That, combined with a tough environment for capital market operations, which generate fees, led to a service income growth of just 2.9%—below inflation, therefore.On the other hand, banks have been trying...
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