Fitch: Brazilian Banks Brace for Rising Provisions this Year

Brazilian banks will face more asset quality pressure and rising loan loss provisions in 2015, dampening the profitability of the Brazilian banking industry, says Fitch Ratings.

A tougher 2015 for Brazilian banks is emerging due to downward credit pressure in the corporate sector due to weak demand, higher corporate leverage and lower liquidity.

Loan loss provisions of up to 30% higher than 2014 should be manageable for most Brazilian banks, with limited impact on their ratings, assuming that capitalization, funding and liquidity remain aligned with historic trends.

The Petrobras investigation and the energy giant's reduced capital expenditures are adding to pressures on the Brazilian banking sector. While banks' revenues have risen due to 2014's interest rate hikes, borrower payment strain increases with it.