Brazil’s Banks Are Healing Bad-Loan Scars With Higher Fee Income

  • Bank inflation rose 11.5% in July, highest rate in 5 years
  • Fees rise 2.8 percentage points faster than inflation rate

Brazilian banks are charging more for everything from checkbooks to credit cards to help cover losses on bad loans, pushing the gap between bank-service fees and the nation’s inflation rate to the highest in more than four years.

Prices for bank services, which have been rising faster than the benchmark inflation rate since August 2015, climbed 11.5 percent in the 12 months through July, the highest rate in almost five years, according to the nation’s statistics bureau. The figure was 2.8 percentage points above Brazil’s consumer price index, the widest gap between bank inflation and the overall rate since April 2012.

As Brazil struggles with its worst recession in more than a century, many companies and consumers are paying debt late. At the same time, borrowers are avoiding tapping new credit with the nation’s benchmark interest rate at a 10-year high. Provisions for the banking industry reached 6.3 percent of total loans in June, the highest level in five years, while the 90-day delinquency rate was at 5.6 percent, near record levels, according to the central bank.

Fees are one of the few levers banks can push to offset declining profit and revenue in other businesses. Service revenue will rise this year by as much as 11 percent, according to estimates from Banco do Brasil SA and Banco Bradesco SA. That would be almost 4 percentage points above inflation estimates compiled by the central bank.

Higher Still

“There is still more room to grow above inflation even for a couple of years,” Tito Labarta, an analyst at Deutsche Bank AG in New York, said in a phone interview, referring to bank fees. “They won’t continue growing at that strong pace, but certainly it’s doable growing at low double-digits, high single-digits.”

Itau Unibanco Holding SA, Latin America’s largest lender by market value, beat analysts’ profit estimates in the second quarter on service fees that offset climbing bad-loan provisions. Fees at Banco do Brasil, the region’s biggest bank by assets, rose 13 percent from a year earlier. Bradesco’s climbed 8.3 percent.

“Fee income didn’t grow just because of price increases, but mainly because of the relationship with our customer base, which led to higher consumption of products and services,” Brasilia-based Banco do Brasil said in an e-mailed statement. “The bank continually studies services and fee increases, updating them to ensure prices are among the most competitive in the market.”

Officials at Bradesco and Itau declined to comment on fees.

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