The Brazilian banking sector is no longer resembling an invincible, profit-making machine. The rate of growth in income among the country's private banks has slowed. The government has declared open season on private sector banks and spearheaded lending by public banks, accelerating a drop in spreads that was already happening thanks to lower interest rates. At the same time, the Brazilian economy is recovering worryingly slowly, meaning loan growth will not return to previous levels and low rates are here to stay. Is the share price rally a dead cat bounce or a more durable sign that the industry is poised to return to health?
Brazil’s largest private sector bank, Itaú Unibanco, reported mediocre if improving fourth-quarter 2012 results on February 5 with recurring profits up 2.6% over the previous quarter. The bank sought to emphasise that it was heading in the right direction. Bradesco, the country’s second largest private sector lender, which had reported results earlier than Itaú, posted a net income increase of 2.9% for 2012 on 2011's figures.