Growth Of Brazilian Banking Sector Will Be Held Back By Higher Rates, Political Uncertainty In 2022

• Fitch expects that rising borrowing costs, slowing economic growth and political uncertainty will limit the growth of Brazil’s banking sector. In 2021, Brazilian banks saw robust loan growth, climbing to 18.6% y-o-y and a record 71.4% of GDP at the end of the year.  
• This continued the trend from 2020, as loan growth was fueled by fiscal stimulus in response to the Covid-19 pandemic and loose monetary policy through H1 2022, which supported lending to firms and households to cover income losses. Additionally, total assets posted 9.2% growth, while deposits expanded by 9.5%. 
• That being said, inflation is expected to average 10.1% by the end of the year, and interest rate hikes are expected. Owing to this, loan growth in Brazil’s banking sector is anticipated to decelerate in 2022, held back by higher interest rates, a weak economic outlook, and political uncertainty ahead of the October 2022 election. Against this, Fitch forecasts loan growth will slow from 18.6% at the end of 2021 to 7.9% at end of 2022.

(Source: Fitch Solutions)