Banco Safra SA's strategy to grow its lending portfolio at a faster clip than its competitors will help temper the impact of low interest rates in its margins, Moody's said March 26.
"We expect the growth of Safra's consumer and commercial loan books to diversify its revenue sources and partially offset the impact of low interest rates on its financial margins and earnings," the rating agency noted in a statement.
Banco Safra's loan expansion is mainly on secured consumer and commercial lending, areas in which it already has expertise, Moody's noted. The bank's decision to lend ahead of its peers during Brazil's recession will enable to command higher credit spreads in secured lending, the rating agency added.
Furthermore, Moody's expects the expansion of the bank's loan book to allow it to take advantage of recovering demand for credit without exposing its balance sheet to outsize risks.
Despite Banco Safra's loan growth strategy, it maintains strong risk management and conservative provisioning policies which will curb asset risks from this year onward, Moody's said. The bank will also retain a control on problem loans given its sizable reserve buffers, despite its strategy to expand toward consumer and commercial lending.
Moody's considers institutional depositors as a reliable funding source for Banco Safra even during heightened volatility, and expects the bank to raise the funding type to curb funding costs and support its balance sheet growth.