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Fitch: Operating environment forcing Brazil's smaller banks toward new strategies

Faced with a difficult operating environment, Brazil's small-and medium-sized banks have had to adopt new business models in order to thrive,Fitch Ratings said in a report.

The rating agency noted that the country's second-tier bankshave suffered from a collapse in domestic demand and a contraction in economic growth,especially since they "rely on buoyant credit growth and low impairment chargesto cover their operating costs." As a result, these banks have reported poorresults or operating losses in 2015 and the first half of 2016, Fitch said.

Moreover, the banks have limited growth prospects over the shortterm, as the recession lingers and large banks move into niche areas including payrolllending.

In order to cope, some banks have resorted to delisting theirshares from the local stock exchanges, believing that they do not need to accessthe capital markets in the near future, Fitch said. "Delisting will also saveon costs as quoted companies have to publish financial statements more frequentlyand maintain a regular supply of information for investors," the rating agencynoted, adding that such a move does not affect their ratings process for the banks.

Other strategies adopted by smaller banks to deal with the toughoperating environment include establishing partnerships with top-tier banks, sellingout to larger institutions, cutting back on services provided and cost-cutting,the rating agency noted.