Share of private-sector banks in lending is expected to lose ground again after growth in recent years, experts say

01/03/2023

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Tarciana Medeiros — Foto: Divulgação/Fernando Santos

The appointment of top executives from Caixa Econômica Federal and Banco do Brasil (BB) working forces to lead these state-owned banks are the latest signs that President Luiz Inácio Lula da Silva intends to use both banks to support the increase of credit, according to market specialists. The market share of private-sector lenders, which has grown in recent years to equal that of the state-owned peers, is expected to give way again to this group that dominated the ranking of the National Financial System (SFN) until 2015.

For investors who own shares in the sector, this is bad news, as it potentially reduces the distribution of dividends from BB, the only state-owned bank with listed shares, and represents competition for other banks in some segments.

“Overall, both BB and Caixa have a relevant part of the portfolio of individuals. I would expect an expansion of credit lines, either through new concessions or debt renegotiation,” said Larissa Quaresma, a financial sector analyst at Empiricus Research. “It is one way to extend the use of state-owned banks as a mechanism for economic policy.”

Both Tarciana Medeiros, appointed as CEO of BB, and Rita Serrano, Caixa’s new CEO, came from the lenders’ ranks. Ms. Medeiros worked at the middle management level and was catapulted to the highest post in the federal bank, and “will need a quick learning curve to handle the position in the statutory board,” said Ms. Quaresma.

As for Ms. Serrano, the employees’ representative on Caixa’s board of directors, Ms. Quaresma says that “she maybe will give in to the pressure for increasing social spending and real salary adjustments.”

Ms. Quaresma evaluates that, in an environment of high interest rates, there will be pressure for the banks to reduce rates. “It is unclear how state-owned banks will manage their finances given the increase in the cost of funding tied to the [Brazil’s key interest rate] Selic.”

The eventual use of BB and Caixa to stimulate credit, contrary to monetary policy, may provoke the migration of riskier borrower profiles from private-sector to state-owned banks, said Ricardo Almeida, the founding partner of the asset management company Tower Three. The executive, who is former CEO of Bradesco Asset, says he does not believe that credit expansion via state-owned banks will occur at the same levels seen in the Rousseff administration when BB, Caixa, and the Brazilian Development Bank (BNDES) adopted anti-cyclical growth policies. “If the amount is the same, it will help a lot with the default rates in private-sector banks. The [population’s] indebtedness is high, I have more concern about Caixa than BB in that sense.”

Turbocharging credit has already proven to be “a bad incentive” because state-owned banks are not good capital allocators, said Otávio Vieira, a managing partner of Nest Investimentos. For him, there is a risk of setbacks, of the expansionist policy depleting the institutions’ financial situation. “The government attempt to stimulate with cheap credit, with subsidies, can be bad and destroy value.”

Fernando Siqueira, head of research at Guide Investimentos, saw the nominations as more political, as the executives were not at the summit or held similar positions elsewhere. “It is worth monitoring now what the policy adopted will look like.” According to him, the market does not see great risks in the “Desenrola” program, of credit for indebted households, one of the priorities of Finance Minister Fernando Haddad. But it is necessary to observe how it will be done and if the government will adopt an expansionist credit policy, as it was during the Roussef administration.

What is emerging, however, is a more competitive scenario for the financial sector, especially in the free credit, in lines such as overdraft, credit cards, and car financing, says Ms. Quaresma, from Empiricus. In real estate credit, there are already subsidies, and this is a field dominated by Caixa. BB, in turn, stands out in agribusiness. For the analyst, private-sector banks tend to seek profitability by making lines that are out of the focus of the state-owned ones more expensive.

Empiricus had a buy recommendation for BB shares during most of the year, but after Mr. Lula’s election, suggested the sale of the stocks. “Whoever bought, definitely has to worry because now the BB’s focus is different, it no longer has that profitability, efficiency, and cash generation agenda. Profit becomes a secondary objective,” said Ms. Quaresma.

She does not expect impacts on the distribution of dividends in the next two or three quarters, which will reflect the results of 2022, but in one year this tends to appear in the accounts.

One stock manager says he held BB in his portfolio for much of the year because the results had been very good, the best in the industry. “I wouldn’t have much of a problem buying again, but I’m waiting to see the first days of government.”

Leonardo Morales, partner and director of SVN Gestão, reduced to zero the positions he held in BB and Petrobras some time ago because of the political risk. For him, the big challenge for the bank is to keep the return on equity (ROE) around 20%.

*By Adriana Cotias, Mariana Ribeiro — São Paulo

Source: Valor International

https://valorinternational.globo.com/