Digital banks lead profitability gains among Brazilian lenders, says central bank

By Marcela Ayres

BRASILIA (Reuters) – Brazilian banks’ profitability improved in the first half of this year, led by digital banks, and net interest income and service revenues should continue to rise in the second half, the central bank said on Thursday.

In its Financial Stability Report, the central bank noted that the return on equity (ROE) for the country’s banking system rose to 15.11% by June 30, up from 14.23% at the end of December 2023.

Digital banks stood out, with their ROE rising to 19.1% by the end of June – the highest among segments – from 11.45% at the end of December.

The group includes institutions such as Nubank, Banco Inter, and C6 Bank.

The central bank attributed the sharp increase to “positive effects of operational leverage through the monetization of customer bases by some institutions and lower pressure from provisioning expenses.”

Between April 2020 and the end of last year, digital banks consistently reported single-digit or negative 12-month ROE.

For the sector as a whole, the central bank said the cycle of risk materialization had weakened, easing the burden of provisioning expenses on overall results.

“The outlook for profitability in the coming periods is for continued gradual improvement, supported by revenue growth, relatively stable provisioning costs, and controlled operating expenses,” it said.