RIO DE JANEIRO, BRAZIL – The pandemic explains a relevant part of the story, but not all of it. The combined revenues of financial services companies fell almost 10% last year, to R$108.3 (US$19.4) billion, as a result of the economic crisis triggered by Covid-19, and yet Brazilian banks once again showed resilience, as in the 2008 financial crisis.
Individual default did not explode in the most acute months of the crisis, largely thanks to the suspension of debt collection by banks, but remained under control and even decreased, as collections resumed. The average default rate closed last year at 4.2%, below the 5% in 2019.
For the largest banks in the country, private or public, it was a year to preserve capital by increasing provisions for the peaks in default that never came, but also to gain operational efficiency and accelerate investments in business digitalization.
New platforms were launched for customers, while thousands of branches were closed because they became redundant, as even the most technology-resistant customer realized the convenience of conducting operations through an app or internet banking.
Consumers’ behavior changes in financial services and products set the tone for another challenge faced by banks: growing competition with new entrants and players that have embraced digital transformation and the advantages of the model, such as faster scale gain and cost reduction, with the regulatory blessing of the Central Bank to encourage competition and benefit customers.