Rate Hikes, Slowing Economy to Suppress Loan Growth for Brazilian Banks

• Rising interest rates and decelerating economic growth will slow the pace of loan growth in the Brazilian banking sector in 2022. Loan growth is expected to decline from 18.7% last year to 8.4% at end of 2022, according to Fitch. 
• Brazil’s banking sector saw substantial growth in their loan portfolios in 2021, bringing loans to GDP to an estimated 72.9%, an all-time high. This continued the strong growth from 2020, fueled by fiscal stimulus aimed at mitigating the economic impact of the pandemic and loose monetary policy in H1 2021, which supported lending to firms and households to cover income losses. 
• At the same time, asset and deposit growth will slow from 10.5% and 9.3%, to 9.7% and 5.7%, respectively, over the same time period. Higher net interest margins will bolster the sector’s profitability, although rising debt servicing costs pose a downside risk to asset quality. 
• Over the course of 2021, households were the driving force behind overall loan growth and while households will likely remain the driving force behind loan growth in 2022, Fitch expects overall demand will decline in 2022, as rising debt serving costs will reduce households’ willingness to take on new debt and elevated inflation will erode the value of wages.

 (Source: Fitch Solutions)