The rating agency Moody’s lowered this Friday the outlook for Brazilian banks from stable to negative as a result of the economic contraction that the country will likely suffer from the coronavirus pandemic.
“Operational conditions for banks will deteriorate in the next 12 to 18 months” due to the “unprecedented blow caused by the pandemic,” the agency said in a statement, highlighting that “as the economy contracts , the general volume of business should decrease “.
Moody’s senior vice president, Ceres Lisboa, stated that “the unexpected drop in the economy, the decline in family income and the increase in unemployment will put pressure on the asset quality of banks and reduce the ability to pay of policyholders credit, increasing delinquencies and credit costs. ”
“As the economy contracts in response to government measures to restrict circulation and control the spread of the coronavirus, the demand for credit and the general volume of business decreases, impacting the billing of banks,” said Lisbon, quoted in the statement.
For the analyst, “the economic decline also signals that low interest rates are more likely to persist for a prolonged period.”
Currently, the Selic base interest rate is at 3.75%, its record low, but economists expect it to drop to 3.25% until the end of the year.
According to the agency, there is a need to maintain a broad “fundraising dynamic” through bank deposits as a response to “risk aversion” by investors at this time.
Likewise, Moody’s considered as “high” the probability that the Brazilian government will have to offer support to banks considered “important” to the country.
“Recent measures related to the coronavirus outbreak occurred at an opportune time and were balanced, reflecting the authorities’ willingness to protect financial stability,” the agency concluded.
The crisis caused by the new coronavirus in Brazil has led the Government of Jair Bolsonaro to project by 2020 a minimum economic growth for the country of 0.02%.
The Central Bank is less optimistic and expects total stagnation (0.0%), while the market estimates that Brazil’s gross domestic product (GDP) will undergo a 1.18% retraction.
International projections are also harsh. According to the International Monetary Fund (IMF), the world economy will fall 3% in 2020, while for Brazil it predicted a deep recession of 5.3%.
The COVID-19, which already leaves 2,141 dead and 33,682 confirmed cases in Brazil, is a serious blow to an economy that has been slowly recovering from the historic recession that it suffered in 2015 and 2016, when the GDP retreated close to seven percentage points.
In the following three years the economy chained positive but discreet results (1.3% in 2017, 1.3% in 2018 and 1.1% in 2019) and the initial forecast, before the pandemic, was that it would finally take off in 2020 , with an expansion of up to 2.5%.