The first six months of 2017 in Brazil was marked by a return to GDP growth, lowering inflation, reduced interest rates and less unemployment, as South America's largest economy recovers from two years of recession, Banco Central do Brasil said in its latest financial stability report, published Oct. 17.
"The effects of the recovering economy are perceived, albeit slowly, in the cooling of the credit risk to the families, although the same one is not yet observed in credit to big corporations," the central bank said.
The profitability of the banking system has improved, Banco Central do Brasil noted, as troubled assets from households and funding costs have decreased.
Funding costs are expected to keep declining along with the reduction of its policy rate benefiting the short-term credit margin. "For the medium and long term, the resumption of credit with volume gains will be fundamental to the maintenance of the improvement in the financial intermediation result of the banks," the central bank noted.
Furthermore, it described the banking system's capitalization and leverage levels as "robust." The report also said liquidity remains high both in analysis supported by internal indicators and by international recommendations, Based on stress tests, compared to the last two semesters, banks were more resilient to shocks, while there was a lower need for capital as unpleasant macroeconomic conditions are simulated.
The number of financial institutions that perceive recession and lack of accountability as sources of risk to financial stability has shrunk to the lowest level of the last five years, the report also noted.
Banco Central do Brasil said global risks did not affect the country's financial stability greatly in the period as the risk imposed by the United States Federal Reserve's short-term interest rate hikes and its effect of emerging economy financing was reduced.