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Brazil Banks to Outperform on Inflation, Deutsche Bank Says

Brazilian banks are poised to outperform when inflation expectations improve, and their “steep discount” to Latin American peers is unjustified, Deutsche Bank AG said.

The industry’s deteriorating asset quality, a trend likely to continue in coming quarters, is already reflected in recent share-price declines, Mario Pierry, an analyst at Deutsche Bank in New York, wrote in report distributed by e-mail today. Brazilian lenders’ earnings will grow 15 percent this year and 13 percent in 2012, the analyst said.

“We do not see the upcoming cycle as reason for panic,” Pierry said. “Consumer delinquencies are at historical lows.”

Brazilian banks have slumped this year as credit curbs and rising borrowing costs cause loan growth to slow, with MSCI Inc.’s gauge of Brazilian financial stocks down 9.3 percent this year, compared to 6.6 percent for the benchmark. Itau Unibanco Holding SA, Latin America’s biggest bank by market value, said Feb. 22 its loan portfolio will expand 15 percent to 20 percent this year, down from 21 percent in 2010.

The central bank has raised the benchmark interest rate by 1.25 percentage points to 12 percent this year to slow inflation, after increasing lenders’ reserve and capital requirements in December.

Consumer prices rose less than forecast in the month through mid-May on smaller increases in food and energy costs, the national statistics agency said today. Prices as measured by the IPCA-15 index rose 0.7 percent, less than the median 0.74 percent projected in a Bloomberg survey of 37 analysts.

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