Santander Brasil in riskier position among local banks, analysts say

SAO PAULO, April 15 (Reuters) – Banco Santander Brasil SA , which grew its loan book aggressively in the last five years, is now likely to be among the Brazilian banks hardest hit by the coronavirus pandemic, analysts say.

Seeking to turbocharge growth at its retail arm in recent years, Santander Brasil sometimes loaned to borrowers other mainstream banks shunned. Now, as Brazilian economy turns down, the bank may face higher delinquency rates.

Consumer loans accounted for 61% of the bank’s loan book as of the end of December, up 17 percentage points from 2015, according to Goldman Sachs’ calculations. “Its loan growth and higher exposure to consumers put it in a relatively riskier position,” analysts at Goldman Sachs said in a note to clients.

Santander Brasil shares are down 43% so far this year, compared with a 37% drop at Banco Bradesco SA and a 35% decline at Itau Unibanco Holding SA.

The crisis stemming from the novel coronavirus outbreak is also likely to put the brakes on Santander Brasil’s accelerated growth, as among the country’s biggest banks it depends the most on credit, analysts at BTG Pactual said. For most of its rivals, fees and other businesses like insurance provide a bigger slice of income.

It could also prompt a strategy shift by the bank to boost its lending to large corporations, which are hungry for credit and in some circumstances willing to pay higher yields, BTG said.

Analysts at JPMorgan Chase told clients in a recent note that Santander’s 2020 performance would largely depend on the length of social distancing measures. “If shutdowns persist for long and unemployment increases, Santander Brasil may struggle the most,” they said.

Santander’s small-companies loan book is also more sensitive to delinquencies, Credit Suisse wrote in a note, and could reduce the bank’s profit between 6% and 13% in the next 18 months.

Still, in private talks with analysts, Santander Brasil’s executives have insisted that their existing strategy is sound.

“Management is not foreseeing a material deterioration in the bank’s results in the same magnitude that we are,” UBS’s analysts said in a recent note.

Brazil has been the biggest source of profit for Spain’s Santander, accounting for 28% of the group’s 2019 net income. It also has a solid capital base, with 12.9% in core 1 capital.

Santander Brasil declined to comment on whether the bank may face greater risk in its portfolio. (Reporting by Carolina Mandl; Editing by Steve Orlofsky)

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