RIO DE JANEIRO, BRAZIL – Fitch said in a statement that it revised the outlook for Brazil’s banking sector from stable to negative “due to the worsening of the global coronavirus pandemic”.
According to the agency, the global macroeconomic shock caused by the disease imposes “execution challenges for all sectors in Brazil,” in a more complex and challenging scenario for companies, the retail sector and individuals.
“This scenario is bound to change the dynamics of credit for banks and for all nonbank financial institutions in the country and should impact their financial profiles,” it points out.
After the approval of the social welfare reform, the level of confidence was increasing, albeit slowly, in Fitch’s opinion.
Leveraging the ample liquidity and record low interest rates, large companies were raising debt through the capital markets – “thus reducing their leverage with the banks,” it notes.
Low interest rates also helped smaller companies, it says.
However, the new business environment after the pandemic is “challenging,” as the short-term liquidity situation of most companies in the country will be affected, Fitch alerts.
This generates doubts regarding the future of cash flow generation and, consequently, the development of employment in the country, “considering the difficulties to estimate the time for economic rebound”.
Fitch revised the projection of the Brazilian Gross Domestic Product (GDP) for growth of 1.7 percent (from a 2.2 percent increase projected in December), saying that the estimate can be revised more frequently, depending on the rate of economic deterioration.
In a climate of uncertainty, banks may be more conservative in pricing their loans, which may also limit the system’s liquidity, the agency points out in its note.