Itaú Unibanco, Banco do Brasil, Caixa Econômica Federal, Bradesco, and Santander reported a combined profit of R$32.324 billion between July and September, marking a 13.8% increase over the same period last year. Financial margins grew by 7.1% to R$100.105 billion, reflecting gains in both client-related credit operations and market-based treasury activities.

The five banks’ total credit portfolio expanded by 10% over the year, reaching R$5.172 trillion, aligning with the Central Bank’s reported 9.9% growth across the national financial system.

Corporate lending showed a split pattern based on company size: loans to large companies declined as they tapped favorable debt market conditions, often facilitated by the banks themselves, while lending to small and medium-sized enterprises (SMEs) rose.

Some banks, such as Bradesco and Santander, initially indicated a strategic focus on the SME sector in the second quarter. However, given recent market shifts, this approach has slowed. Bradesco, for instance, now prioritizes secured lines like Pronampe, which offer higher returns with lower risk.

In restructuring after a challenging 2023, Bradesco is mitigating risks, focusing on secured credit lines, and steering clear of more economically vulnerable sectors. CEO Marcelo Noronha, marking a year at the bank, highlighted reduced expenses on provisions for doubtful debts (PDD) and improved profitability. He characterized the portfolio’s growth as “very appropriate to the risk” and noted a decline in default rates across all lines, adopting an “optimistic yet grounded” stance.

Santander expressed a similar tone of caution. CEO Mario Leão emphasized discipline and profitability in the third-quarter announcements, focusing on steady, profit-driven growth. Santander’s credit portfolio saw a slight decline, with “hiccups” observed in medium-sized companies amid high interest rates, as corporate loans typically carry post-fixed rates.

“We remain focused on building a rapidly profitable operation that returns to former levels but with a more diversified mix,” Mr. Leão stated.

On the more optimistic end sits Itaú. After another record-breaking quarter, CEO Milton Maluhy affirmed that the bank would continue expanding its credit portfolio with a favorable default outlook. Addressing concerns over uncertainties in local and global markets, Mr. Maluhy maintained that the bank’s appetite remains steady. “We continue to see our capacity to grow the portfolio with quality in a positive light,” he said.

State-owned institutions, however, reveal distinct challenges. Banco do Brasil, a leader in agribusiness, faced significant setbacks from adverse weather conditions impacting the sector. Although the bank had anticipated improved default rates with the new Crop Plan—a government program designed to support the agricultural sector by providing financing for crop cultivation, equipment purchase, and investment in agricultural infrastructure—this progress has been slower than expected. Delays in rainfall have led producers to accelerate planting.

Banco do Brasil’s overall default rate climbed to 3.33% in September, up from 3% in June and 2.81% in September 2023. In agribusiness, defaults rose to 1.97% from 1.32% and 0.71%, with Banco do Brasil attributing this trend to “cyclical issues affecting rural producers’ cash flow, particularly in the soybean sector.”

Banco do Brasil’s president, Tarciana Medeiros, emphasized credit as a strategic pillar, “We have been working on credit in an integrated and synergistic way across our markets, balancing risk and return.”

Meanwhile, Caixa faces challenges with limited funds for real estate loans. It recently adjusted its policies, capping Brazilian Savings and Loan System (SBPE) financing to properties worth R$1.5 million. Additionally, the Constant Amortization System (SAC) financing limit was reduced from 80% to 70%, and under the Price system, from 70% to 50%.

Caixa’s president, Carlos Vieira, noted that while the bank has secured its 2024 position, 2025 may present funding difficulties unless action is taken. The bank’s rising market share has added budgetary pressure.

On Wednesday (13th), Caixa’s financial vice president, Marcos Brasiliano, remarked that, for now, no reduction in housing finance via SBPE is anticipated for 2025. Although next year’s initial budget does not include a cut, he highlighted the need for further assessment, adding that guidance will be released early next year. Funding for social housing, he noted, will depend on allocations from the Federal Government and the Workers’ Severance Fund (FGTS), adding, “Everything that comes from the social housing budget will be implemented.”

Analysts at BTG Pactual observe a worsening environment for Brazil’s credit growth, complicating the current outlook. They note that while some banks, like Bradesco, previously pursued higher-risk strategies to bolster results, a risk-adjusted return approach has taken precedence. “Improving ROE [return on equity] may take longer, but we believe Bradesco’s management is prudent in adopting a more conservative stance given the circumstances. Itaú, meanwhile, exceeded expectations and signaled extraordinary dividend payments over the next two years,” they stated in a report.