How Brazilian banks make huge profits despite the crisis

In the words of the International Monetary Fund, the Brazilian economy is “underperforming relative to its potential, public debt is high and increasing, and, more importantly, medium-term growth prospects remain uninspiring.” If the fund’s predictions are correct, Brazil’s GDP will grow by only 1.8 percent, after numerous revisions. In 2019, the next president will inherit a country with little investment capacity (only 0.5 percent of the GDP) and a brutal fiscal crisis.

Yet, Brazil’s biggest banks seem to be cruising through the crisis.

The country’s top four banks on the stock market – Itaú Unibanco, Banco do Brasil, Bradesco, and Santander – have recorded combined profits of BRL 16.9 billion, the best result since 2015’s second quarter. Even during the recession’s worst moments, these banks’ quarterly profits never came in south of BRL 11.6 billion.

Whatever situation the Brazilian economy may face, one thing seems certain. Banks will be making obscene profits. While most European banks post a single-digit return on equity numbers, Itaú (Brazil’s biggest private bank) reported 20.1 percent. Actually, RoE never fell below 15.9 percent for...