Jefferies: Credit Trends and Bank Dispersion Define Brazil's Week

Investing.com -- Payroll loans, asset quality and profitability gaps dominated discussion of Brazilian banks last week, according to Jefferies, with credit trends emerging as the central concern as expectations for rate cuts diminish.

Regulatory measures intended to control payroll loan supply may produce unintended consequences, Jefferies noted. Specialized lenders could respond by offering unsecured loans to top up payroll credit limits at higher spreads. Unsecured lending rates in the INSS segment can exceed payroll rates by more than four times, creating incentive for such shifts.

The private payroll segment has grown from approximately 40 billion Brazilian reals to approximately 102 billion reals in just over 12 months, Jefferies reported. Market share for five incumbent banks fell from approximately 76% to approximately 41% since the first quarter of 2025, pointing to aggressive entry from smaller private players.

Inter & Co's private payroll cost of risk reached approximately 17% in the first quarter of 2026, accounting for roughly one-third of the sequential increase in group cost of risk, despite the product representing only approximately 4% of total risk exposure, according to Jefferies estimates.

Bradesco generated approximately 26% of Itau Unibanco's banking profits currently, down from approximately 80% in the first quarter of 2022, Jefferies data showed. Bradesco delivers approximately 1.4% pre-tax returns on risk-weighted assets on an adjusted basis, versus approximately 4% at Itau and approximately 2.4% at Santander Brasil. Bradesco stated last week it has adopted a more conservative risk appetite.

On asset quality, both Santander Brasil and Bradesco saw non-performing loan formation increase by approximately 30 basis points quarter-over-quarter. Bradesco disclosed that corporate cost of risk doubled sequentially, implying a approximately 20 basis point quarterly increase in retail cost of risk.

On funding, Santander Brasil is growing at low single digits while Itau and Bradesco are both delivering more than 15% growth. Demand deposits at Santander fell approximately 45% year-over-year versus increases of 5% at Itau and 12% at Bradesco. Santander management attributed this to a strategy to optimize funding costs by reshaping the mix.

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