Some big banks still don’t know what to do with low-income customers
In recent weeks, Brazil’s largest private banks released their 2023 earnings reports, which show mixed signals regarding the lower-income clientele. Unlike their peers, Bradesco and Santander are finding it more difficult to reduce delinquencies among these customers after granting them a lot of credit during the Covid pandemic.
State of play. Despite the general decline in individual delinquency rates between May and December 2023, from 4.3 percent (the peak) to 3.7 percent, according to the Central Bank, the loans granted to low-income customers in 2021 and early 2022 still caused Bradesco and Santander to lower net income and return on equity (ROE).
- Santander reported a net profit of BRL 9.383 billion (USD 1.89 billion), down 27.3 percent from the previous year.
- Bradesco posted a net profit of BRL 16.297 billion in 2023, 21.2 percent less than in 2022, when its results had already shrunk by 21 percent.
- Both also reported return on equity well above the 15-20 percent of pre-pandemic levels.
Why it matters. Most of the neobanks in Brazil expanded their operations by catering to lower-income customers, forcing the incumbents to follow suit. Now that they are all suffering from low credit demand and high delinquency rates, digital banks are openly chasing higher-income customers as they also seek profitability.
- This highly competitive scenario may have led the country to an unprecedented situation, according to Bank of America: the number of bank customers in Brazil may have reached a saturation point. There are more than 180 million digital accounts open in the country, the equivalent of five accounts for every Brazilian adult. Banks are now fighting over who will be users’ number-one choice on their smartphone screens.
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