Brazil’s banks have been buffeted by political headwinds and economic turmoil for years, and stability is unlikely to return soon as a polarised electorate goes to the polls. Joy Macknight reports.

On October 28, Brazilians will turn out to vote in the run-off between right-wing Jair Bolsonaro of the Social Liberal Party and leftist Fernando Haddad of the PT (Workers’ Party). Mr Bolsonaro, a former army captain, almost won a first-round victory, capturing 46% of the vote. The unpredictability of the outcome has sent shivers through the investor community, increasing volatility in an already unstable market.

It has been a tumultuous few years for Brazil’s biggest banks. They went from the heady days of 2012 – when four of the top five reported their biggest balance sheets ever, despite a weak 0.9% growth in gross domestic product – to the low point in 2015 when the economy suffered its worst slump for quarter of a century and the Petrobras scandal ripped through the banking sector. Brazil’s two largest banks by total assets, Itaú Unibanco and Banco do Brasil, lost 34% and 36% in assets, respectively, over those three years.

Only one bank in the top five – Caixa Econômica Federal – has a bigger balance sheet today than in 2012.

The profits of the top five Brazilian banks also took a hit in 2015, with all five reporting their lowest levels since 2009. While four of the banks still managed to record a profit, Banco Santander Brasil reported a $824m loss. The banks’ results rebounded in 2016 and 2017, indicative of an improving environment, but whether this will continue through 2018 and beyond depends on the next president’s policy positions. 

All data sourced from www.thebankerdatabase.com

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