Santander claims that the pressure on its Brazilian business is nearing its limit and that the worst is over in terms of risk cost. The entity has adjusted its portfolio to reduce risk exposure.
Santander has stated that the pressure on its business in Brazil is reaching its limit and that "the worst is over" regarding the risk cost, which is projected at 4.2% for the entirety of 2026. This strategy responds to a shift in its portfolio profile, focusing on high-income clients.
As of June, the risk cost in Brazil stood at 4.14%, compared to 1.15% for the global group. The entity is directing its corporate banking towards exporters and foreign trade financing, while in retail banking, it has increased its focus on the affluent segment, raising its proportion in the portfolio.
The Chief Financial Officer of Santander Brazil, Carlos Muñiz, stated that this focus may impact short-term revenues, but it is crucial for achieving a more balanced and predictable operation. Despite pressure on margins, the interest margin has grown by 2% year-on-year in the first half of the year, driven by corporate banking and the growth of Openbank.
In a challenging macroeconomic environment, Santander's CEO, Héctor Grisi, assured that the Brazilian economy is experiencing a "soft landing" and expects resilient growth in 2026, supported by fiscal stimuli and a strong labour market. However, credit is reflecting the effects of the restrictive monetary policy of recent months.
The normalisation of interest rates will be slower than expected, but it is anticipated to be around 13.5% by the end of 2026. For the following years, Santander expects a gradual reduction of between 100 and 150 basis points, which could improve business profitability.
Despite increased optimism, the political scenario in Brazil poses uncertainties, especially with elections scheduled for October. The Chief Financial Officer of the Santander Group, José García Cantera, highlighted the increase in public spending ahead of these elections as a limiting factor for significantly reducing interest rates, although in his most favourable scenario, he believes Lula could be re-elected.
In the first half of the year, Brazil contributed 12% to Santander's results, with a net profit of 1.093 billion euros, a 4.8% increase at constant exchange rates. Although a full recovery is not expected, the bank believes that credit deterioration is coming to an end, which could allow for a return to profitability.
You may also like
