Brazilian banks recorded worst profitability in 10 years due to the pandemic

A report by the Central Bank on Monday revealed that Brazilian lenders saw a sharp decline in profitability last year, marking the first of its kind since the recession in 2015/2016, as the COVID-19 crisis mandated increased provisions.

In the final month of 2020, the banking sector recorded an aggregated return on equity of 11.5%. That marked the lowest in the central bank’s series. 

“The fall in profitability was widespread, affecting banks of different types of control, size and activity,” the Central Bank report said.

“The fall in profitability was widespread, affecting banks of different types of control, size and activity,”

“Bolstering provisions in 2020 reduces the need for significant new provisions, and the rebound in economic activity will support growth, credit quality, and demand for banking services,” it added.

The report also puts a spotlight on how much reduction the concentration of the banking system has suffered. This was mostly due to the fall in the market share of state-owned institutions such as Banco do Brasil, Caixa Economica Federal and the BNDES national development bank.

Itau, Bradesco, Santander, Banco do Brasil and Caixa Economica Federal, the top 5 lenders in Brazil, racked up 77.6% of total assets in December 2020, falling from the previous year’s 81%. The cumulative number of deposits in these banks fell to 79.1% from 83.4% in December last year.

In 2021, the general outlook is reportedly showing notable signs of improvement, despite the fact that the uncertainty brought on by the pandemic persists across many sectors.