Bank profitability returns to pre-pandemic level

Bank profitability returns to pre-pandemic level

Bank profitability has already returned to its pre-pandemic level, with interest margin growth, reduced expenses with provisions (credit risk reserve) and efficiency gains. The assessment by the Central Bank (BC), in the Financial Stability Report for the second half of 2021, released today (9).

The profitability of the system continues to recover from the effects of the pandemic and should remain resilient in the short term. The document says that, after a significant decline in the first half of 2020, the system’s profitability has returned to levels close to those observed before the pandemic.

According to the Basel Accord, expenses have stabilized with provisions and that the current level of provision coverage “could help absorb any increases in problem assets”. Credit margin is under pressure due to the increase in financing costs, but should benefit from a more profitable mix and new credit contracts at higher rates. Also, according to the report, service revenue should grow at a slower pace and costs, while controlled, should continue to be under pressure from inflation.

The system’s net income was R$132 billion in 2021, 49% higher than 2020, and 10% higher than 2019. Return on equity was 15%, and returned to pre-pandemic levels.

However, according to the Basel Accord, expectations indicate a more moderate development of profitability in the coming periods. The 2022 scenario is weak economic activity, lower credit growth, normalization of defaults, and higher financing and operating costs. These elements represent obstacles to the development of profitability in the future,” says the BC report.

Bank credit to MSMEs continues to grow above the pre-pandemic level. Although there were new concessions under the National Support Program for Small and Micro Business (Pronampe) and the Credit Stimulus Program (PEC), the highlight was the increase in the non-programme portfolio.

stress tests

The strong capital base and stress test results continued to show the resiliency of the banking system in the second half of last year, with adequate provisions for the level of expected losses with comfortable credit, capitalization and liquidity.

In a stress test, the Basel Accord simulates how severe a default situation and banking operation affect compliance with minimum regulatory limits by financial institutions and the extent to which the monetary authority needs to contribute to the financial system. Among these limits is to keep a cash reserve to ensure that banks pay all customers who withdraw cash in times of crisis. Credit, interest, foreign exchange and property write-down risks are also tested.

BC considered two scenarios, the first related to a decrease in economic activity and household consumption, an increase in unemployment, and a decrease in inflation and interest rates; And the second scenario of increased uncertainty in the economy, with financial deterioration, exchange rates rising, interest rates rising, and inflationary pressure.

“BC estimates that there are no related financial stability risks. Capital stress tests showed that the banking system was prepared to withstand all simulated macroeconomic shocks,” says the report. He adds that “the results obtained in sensitivity analyzes also indicate good resistance to risk factors, simulated in isolation.”

Liquidity stress test also indicates a comfortable amount of liquid assets in the event of cash outflows in adverse conditions or a shock to market standards in the short term.


According to the Central Bank, the high financial risks and the ongoing monetary tightening process, and raising interest rates, still affect the current financial conditions, and thus the current and future economic activity. Market confidence in financial stability remains high, although it has eased slightly. Financial institutions have expressed concern about financial risks and domestic inflation, declining confidence in the recovery of economic activity and declining willingness to take risks,” says BC.

According to the report, for financial institutions, “high inflation affects consumption and investment decisions, leads to a decrease in household income and purchasing power and leads to monetary tightening, which affects economic activity, indebtedness and defaults.”

Globally, the financial system of major economies remains resilient. “With regard to the risks associated with the increase in international geopolitical tensions after the start of the war between Russia and Ukraine, the reduced flow of trade between Brazil and countries directly involved in the conflict indicates a limited impact through this channel,” he explains.

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