Jefferies: Credit Trends and Bank Performance Divergence Dominate Brazil Market Weekly Developments

Investing.com – According to Jefferies’ report, last week the discussion focus in the Brazilian banking sector centered on topics such as salary loans, asset quality, and profit margin gaps. As market expectations for interest rate cuts gradually cool down, credit trends have become a core concern.

Jefferies pointed out that regulatory measures aimed at controlling the supply of salary loans may have unintended side effects. Professional lending institutions might turn to offering unsecured loans to borrowers to make up for the shortfall in salary credit limits, and charge higher spreads. In the INSS (Brazilian Social Security Institute) segment, unsecured loan interest rates can exceed salary loan rates by more than four times, providing strong profit incentives for such business transformations.

Jefferies data shows that the private salary loan market size grew from about 40 billion Brazilian reais to approximately 102 billion reais in just over 12 months. Since the first quarter of 2025, the market share of the five major banks has plummeted from about 76% to around 41%, reflecting the strong entry of small and medium-sized private institutions.

Jefferies estimates that Inter & Co (Brazilian internet bank) has a risk cost of about 17% for its private salary loan business in the first quarter of 2026, even though this product accounts for only about 4% of the group’s total risk exposure, it contributes about one-third of the group’s overall incremental risk cost.

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Jefferies data also shows that Bradesco Bank currently generates about 26% of the profit of Itaú Unibanco, whereas in Q1 2022, this ratio was about 80%. In terms of pre-tax return on risk-weighted assets, Bradesco is about 1.4%, Itaú about 4%, and Santander Brasil about 2.4%. Last week, Bradesco stated that the company has adopted a more conservative risk appetite strategy.

In terms of asset quality, both Santander Brasil and Bradesco saw their non-performing loan generation rates increase by about 30 basis points month-over-month. Bradesco disclosed that corporate risk costs doubled month-over-month, meaning retail risk costs increased by about 20 basis points each quarter.

Regarding funding sources, Santander Brasil’s deposit growth remains in the low single digits, while Itaú and Bradesco’s growth exceeds 15%. Santander’s current account deposits decreased by about 45% year-over-year, while Itaú and Bradesco grew by 5% and 12%, respectively. Santander’s management attributes this to proactive strategies to optimize financing costs through adjustments in capital structure.

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