Brazilian Banks Struggle to Keep Afloat in Troubled Economy

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – Although large financial institutions in Brazil, such as Itau, Unibanco and Bradesco registered billion dollar profits last year, the small and medium sized banks in the country are struggling to stay afloat. These struggling institutions are now being carefully watched and have become attractive as possible acquisitions by the larger banks, especially foreign institutions.

A recent survey conducted by daily O Globo showed that losses of 22 of these small and medium sized financial institutions totaled R$1.5 billion until the third quarter of 2015.

The current economic problems faced by the country has been harder on these institutions which concentrate their credit portfolios in sectors which have been struggling to survive, have little operational flexibility and limited cashflow.

“These banks are more sensitive to risk than the bigger ones because they have high concentration percentages, either with all their credit portfolios on a specific sector or on certain types of operation,” Ceres Lisboa told the press.

“We have been talking with foreign banks and there is an interest in operating in Brazil,” said Fitch director, Claudio Gallina to O Globo. According to Gallina the interest is coming especially from Asian institutions, which have larger capital to invest.

Yet while Asian groups are seeking information about Brazilian financial institutions, European banks have started to reduce their presence in the South American country. Barclays has announced it is closing its branches in Brazil, while HSBC sold its operations to Bradesco and is waiting for CADE (Brazil’s Anti-Trust Agency) approval to leave the country. France’s Société Générale decided to stay in the country, but has shifted its focus to institutional and corporative clients only.