Banks project 2023 to be more difficult than 2022 – 02/15/2023 – Market

The big Brazilian banks project a year 2023 more challenging than 2022, marked by elections, inflation and rising interest rates. But the default of individuals and the Americanas case, in addition to the still high Selic, inspire more caution than optimism in the sector.

Despite the differences presented in the results for the fourth quarter of 2022, the projections made by the giants of the financial sector have in common a scenario of credit slowdown and greater volume of money destined to protection against default.

Santander did not disclose indicator projections for the year. Itaú Unibanco, Bradesco and Banco do Brasil set the basis for 2023 single-digit growth in their loan portfolios, and an increase of at least 20% in their PDDs (provisions against loan losses).

The Americanas case contributes to a more cautious perception of the banks, even for Bradesco and Itaú, which have already reserved 100% of their exposures for an eventual total default by the retailer.

The president of Itaú Unibanco, Milton Maluhy Filho, recommended that companies “reduce their debt levels” to face the current moment of high interest rates and uncertainties.

The coverage ratio in Itaú’s credit portfolio for large companies rose from 588% at the end of 2021 to 1,857% in December 2022. This ratio consists of separate values ​​to protect against delays greater than 90 days in the payment of loans.

According to Itaú’s projections, the cost of credit, resulting from provisions against bad debt with discounts for renegotiations and recovered amounts, may exceed R$ 40 billion in 2023, compared to just over R$ 30 billion last year, when it was already accounted for the American case.

Bradesco made the largest reserve in the sector for the Americanas case, of almost R$ 5 billion. And it was one of those that had its exposure revised upwards, after the release of the new list of creditors. The retailer’s debts increased by around BRL 300 million in the most recent document.

Even having reserved 100% of its exposure, Bradesco also projects larger provisions for 2023. The total amount could reach almost BRL 40 billion, against BRL 32.5 billion in 2022.

This number signals that general defaults should increase even more. Last year, arrears greater than 90% accounted for 4.3% of the portfolio, an increase of 1.5 percentage points in 12 months.

About Bradesco’s numbers, BTG Pactual analysts say that the institution’s problems are not caused only by Americanas. And because of that, the bank’s preferred stock has dropped about 25% in one year.

“Recovering confidence takes time. If Bradesco is open to discussing its past mistakes, and showing that its guidance can be achieved throughout the year, the stock can start to recover”, says BTG.

Santander did not release many numbers about the Americanas case, and also did not make projections for 2023. The estimate is that the bank has made a provision of R$ 1.1 billion to cover possible losses with the retailer.

According to BTG analysts, Santander’s first half of 2023 will be weak, and profitability may start to normalize in the second half of the year. After the balance sheet released by the bank, the Santander Brasil Unit had its recommendation downgraded to Sale.

The bank that suffered the least from Americanas was the one that presented, in the analysts’ view, the best results of the fourth quarter of 2022. Banco do Brasil made a provision of R$ 800 million, which corresponds to half of its exposure to the company, and offered better returns than its competitors.

For the Eleven team, the BB result was surprising. “Even provisioning 50% of its exposure to Americanas, the profit of R$ 9 billion in the quarter was 8.7% above our estimates and 9.2% above market consensus”, say the analysts.

BB also projects higher expenses with provisions in 2023, with an increase of up to 37%. Even so, the bank expects to make a profit of up to BRL 37 billion this year, compared to almost BRL 32 billion in 2022.

For Jansen Costa, founding partner of Fatorial Investimentos, the Americanas case may still have a secondary effect for banks. “We have to look at the consequences. The supply chain will have problems with the situation of Americanas.” For the analyst, the first quarter of 2023 for banks, in general, should be negative.

Be more careful with credit

In general, banks should promote a slowdown in the growth of their credit portfolios in 2023. In the case of individuals, the strategy is to increase the focus on lines with lower risks, such as payroll.

Itaú and Bradesco have very similar projections for loan growth this year. Both expect their portfolios to grow at most 9% and 9.5% in the year, respectively.

Banco do Brasil is a little more optimistic, and expects growth of up to 12%. But growth would be driven mainly by agribusiness, the segment with the lowest default rates.

The new president of BB, Tarciana Medeiros, said that payroll will be a priority in 2023. The bank wants to grow in payroll segments where it is already strong, such as granting credit to INSS retirees and pensioners, but the idea is also look for other audiences.

The speech of the executive, during an interview with journalists about the results this Tuesday (14), is in line with a recent statement by President Luiz Inácio Lula da Silva (PT), who wants BB as a “champion of payroll loans”.

Itaú and Bradesco began, in 2022, to slow down concessions in riskier lines, such as personal loans and credit cards.

At Bradesco, lending to individuals and smaller companies fell by 16% and 18% compared to the fourth quarter of 2021, respectively.

“The bank granted more credit than it should have during the pandemic, and it was a lesson learned by us. We always have to be one point ahead of the curve, and that is why we will continue, in 2023, to be more restrictive in credit to individuals, especially low income, and for micro and small companies”, commented Octavio da Lazari Júnior, president of Bradesco, when presenting the numbers.

Overall, more negative

For Gabriel Gracia, an analyst at Guide Investimentos, the numbers presented by the large publicly traded banks in the fourth quarter of 2022 were more negative.

“In general, the main cause for this deterioration in profits was the high level of provisions that banks had to make at the end of last year”, says Garcia.

Guilherme Tiglia, partner and stock analyst at Nord Research, separates the banks into two groups. On a more positive side are BB and Itaú. On the other, more problematic side, are Bradesco and Santander.

“Even with Americanas, Itaú and BB delivered returns close to 20%, a very good level. And in the case of BB, there is a very large share price discount compared to competitors, due to the political risk”, says Tiglia.

Bradesco and Santander, on the other hand, for the Nord analyst, were especially disappointed in terms of default, with worse levels than the other two banks.