Financial institution profitability ought to evolve reasonably after speedy restoration in 2021, 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 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 report, the 2021 results of financial institutions were driven by interest margin growth, reduced provision expenses and efficiency gains. The return on equity of these companies has returned to pre-pandemic levels.

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.

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.

(Reuters)