Brazilian stocks have rallied this year and banks in Latin America’s largest economy appear inexpensive, those institutions are faced with declining consumer credit quality. Additionally, some Brazilian states have recently delayed payment to public workers, potentially crimping the ability of those workers to repay loans taken from Brazilian banks.
“Despite a slight improvement in investor and consumer confidence in the last months, the operational environment remains challenging and banks, especially the public ones, may need to constitute some additional provisions for bad loans in 2017, which can also limit profitability during 2017,” according to the Fitch note posted by Barron’s.
Brazil’s central bank has lowered the benchmark selic rate twice in recent months.
For more information on the Brazilian markets, visit our Brazil category.