Brazil's credit market, which for years has been dominated by state-run banks offering subsidized rates and terms, is rapidly shifting to the private sector as President Jair Bolsonaro's administration works to narrow the government's role in finance.
As of the end of the first quarter, private sector banking institutions had a 52.9% credit market share, up from 49.6% a year earlier, data compiled by S&P Global Market Intelligence shows. Government-owned institutions, meanwhile, saw their market share shrink to 47.1% from 50.4% year over year.
While the trend of the shift toward private banks and away from public ones has been occurring for some time, it is accelerating.
There is "a completely different emphasis and pace," Luiz Fernando Figueiredo, a former monetary policy director at Banco Central do Brasil and CEO at Maua Capital, said of the shift toward private banks.
"The trend is reverting really fast," said André Martins, a banking analyst with XP Investimentos.

Since taking office at the start of the year, Bolsonaro's economic team, led by Economy Minister Paulo Guedes, has focused heavily on realigning the country's state banks back to their original businesses, effectively reversing years of expansion under previous Workers' Party governments. Guedes has tasked public banks such as Caixa Econômica Federal and Banco do Brasil SA with trimming back their credit participation at an increasingly faster pace and returning to their core lending activities.
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In some cases, that represents substantial changes. Caixa's core business, for instance, is home lending, but its lending portfolio also includes some 239 billion reais outside that category. Banco do Brasil, which is supposed to focus on agribusiness and other economically important sectors, holds more than 200 billion reais of loans to individuals, and another 39.8 billion reais in loans to entities outside of Brazil.
Even within the core businesses, the public banks' competitive advantage is expected to dwindle, leaving an opening for the private sector to step in.
"Public banks are likely to underperform in terms of loan growth, and their market shares — BB in agribusiness and Caixa in real state — should gradually decline," XP's Martins said. "Private banks are looking at this as an opportunity ... Their portfolios are still smaller, but they are being more aggressive on rates," he added, noting that a record low-interest-rate environment is helping private players better compete.
Some private institutions — chiefly Banco Santander (Brasil) SA, Itaú Unibanco Holding SA and Banco Bradesco SA — are already taking advantage. After years of marginal growth, they have returned to double-digit expansion rates, partly as a result of growth in mortgage lending, where Caixa still holds a nearly 69% market share. And despite weaker than expected economic growth tempering guidance, most private banks still expect loan portfolio growth at about 10% this year.
"It's really an incredible year, so far," André Cano, Bradesco's investor relations head, said during a recent conference call, pointing to market share gains in personal loans, payroll loans and mortgages. "We are very well positioned ... to get market share from state-owned banks and also from privately held banks," he added.
One of the potentially most lucrative business lines opening up to the private sector is agribusiness. The industry, which includes agriculture, cattle ranching and food processing, is a major part of Brazil's economy, accounting for about 20% of GDP, and has long been dominated by public banks that have been able to offer subsidized rates. The government, however, wants to cut back on such subsidies.
"With the reduction of public spending, there is room for private banking to benefit from the reduction in subsidized interest rates to agriculture," Luis Santacreu, a bank analyst with Austin Ratings, said in an interview. "What before was a comparative advantage [for public banks] has diminished a lot as interest rates have gone down," he added.
At 187.4 billion reais, Banco do Brasil holds 66.1% of the agribusiness loan market, according to central bank figures, though it already is starting to decline. And some private banks are starting to move in, albeit from a very low base.
Santander Brasil, for instance, booked a 78.4% increase in agricultural loans to both corporate entities and individuals, hitting 10.82 billion reais. That still represents just 3.4% of the bank's total loan book, but the company is working to grow further. Under CEO Sergio Rial, whose experience includes senior positions at major agribusiness companies, Santander Brasil has opened two dozen specialized agricultural branches in the Brazilian countryside and plans to add more.
Increasing agricultural lending could yield benefits in other banking operations as well, analysts noted.
"Agricultural producers are wealthy individuals, and they can very well become clients of wealth management divisions," Martins said. "It's a very promising segment that Banco do Brasil does not exploit so well, and that Bradesco, Itaú and especially Santander are very well positioned to leverage."
As of Aug 21, US$1 was equivalent to 4.03 Brazilian reais.


