Midsized Brazilian Banks Face Challenges

Brazilian midsized banks could face significant challenges to their business models despite experiencing significant growth, according to a Fitch report. The high level of risk associated with wholesale funding is a major concern, says the report. “The evident mismatch in terms of funding (concentration and tenor) and assets (midterm retail loans) results in a credit negative for this segment,” says Fitch. Rapid loan growth is also cause for concern. Profitability could be impacted by lower-than-expected growth in future, although profitability has so far been in ilne with market trends, according to the ratings agency. Liquidity is also a key cause for concern, says Fitch, as is competition from larger players, maintaining capital adequacy ratios and the ability to continue to access funding. Government measures to fight inflation and systemic credit risk could also affect the strategies of some banks, with smaller banks possibly having to sell their business, adds the report.