Brazil

The Brazilian securities lending market had just over $2.2bn (£1.7bn) of lendable equities at the end of 2022 according to S&P Global Market Intelligence, a figure largely unchanged from the previous year.

In terms of value on loan, the 2022 total of over $1.9bn represented a significant increase on the $1.5bn recorded for 2021, which in turn was more than a fivefold increase over the total for 2020. Lending revenues of $24mn were nearly three times as high as in 2021.

The Central Bank of Brazil (Banco Central do Brasil) financial stability report for the first half of 2022 reported that there were no relevant risks to financial stability. Capital stress tests showed that the banking system had adequate resilience and that the national financial system maintained provisions appropriate to the level of expected losses and comfortable capitalisation and liquidity. Broad credit growth continued to be consistent with economic fundamentals. Bank credit to households maintained its high growth rate and credit to micro, small, and medium-sized companies also continued to grow strongly. Larger companies continued to mainly access capital markets but again increased operations with the banking system.

Risk appetite of financial institutions remained high on lending to microenterprises and households. Risk materialisation increased due to riskier grants in previous quarters and to the deterioration of the financial situation of micro-enterprises and households. Provisions, however, increased and remained higher than expected losses.

Despite higher provision expenses, the profitability of the banking system remained stable. In line with the base interest rate hikes, the increase in the treasury margin offset the reduction in the credit margin. In the non-interest share of results, services income grew at a slower pace in the first half of 2022 but banks have been able to keep costs under control in a context of high inflation.

Capitalisation remained comfortably above regulatory minimums. Even in simulations with more adverse macroeconomic scenarios, no material non-compliances would occur.

In May, the IMF completed an Article IV visit to Brazil, observing that growth is projected to moderate this year to 1.2%, from 2.9% in 2022 before improving to 1.4% in 2024 and 2% over the medium term.

Headline inflation has rapidly declined from last year’s peak, but core inflation remains elevated, while inflation expectations have edged up. Headline inflation is expected to converge to the target by mid-2025. The outlook is subject to downside risks. However, strong buffers, including a sound financial system, large cash buffers by the public sector, and adequate international reserves, support resilience.

Brazilian authorities aim to achieve a primary fiscal surplus of 1% of GDP by 2026. However, the IMF has recommended a more ambitious fiscal effort that continues beyond 2026 to put debt on a firmly declining path, while protecting social and investment spending, supported by an enhanced fiscal framework, further broadening of the tax base, and reforms that tackle spending rigidities.