With the second worst Covid death-toll in the world, a poor vaccination campaign and social unrest, Brazil has struggled through the best part of the past 12 months. Things improved momentarily towards the end of 2020, when banks felt that their earlier economic forecasts – more hopeful than those of international observers – had been vindicated. In the end, gross domestic product dropped by 4.1%, signposting 2020 as the worst year in economic terms in four decades.
For Brazil’s largest banks, this resulted in a deterioration of activities: shrinking assets, smaller loan portfolios and bigger non-performing loan ratios. Economic conditions naturally took a hit on profitability. Return on equity and return on risk-weighted assets fell compared to the previous year for four of the country’s big five banks. Profit margins also went south for three of them, with Itaú Unibanco, the biggest of the group, seeing its profit margin dive from 26.39% in 2019 to 5.15% in 2020.