Industry Forecast - Banking Sector: Corporate Sector A Source Of Weakness - 24 JULY 2017

BMI View : The Brazilian banking sector faces a dim growth outlook over the coming quarters, as political uncertainty weighs on investment decisions and loan demand . Though household deleveraging will offer some support to asset quality, asset quality from the corporate sector will remain weak over the near-term.

Brazilian banks will see slower growth than we previously expected over the coming quarters as the country's economy remains weak amid significant political uncertainty. Although we maintain our view that the Brazilian economy will modestly rebound in 2017, we have downgraded our real GDP growth expectations as a weakening reform outlook will likely undermine investment ( see 'Recovery Looks More Cyclical Than Structural', June 30). By extension, we expect a more modest improvement in asset and loan growth over the coming quarters. Both asset and loan growth have underperformed our expectations in the year through May, the latest data available, with loan continuing to contract.

As a result, we have downgraded our forecasts for both indicators. We now forecast no loan growth in 2017, down from 5.9% previously, and more modest total asset growth of 7.0%, from 10.4% previously.

Corporate Asset Quality Deteriorating
Brazil - Non-Performing Loans By Sector, %
Source: BCB, BMI

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