Brazilian Banks Improve Profitability, Led by Digital Players

Digital banks reportedly led Brazilian banks’ profitability improvements during the first half of the year.

The country’s digital banks saw their annual return on equity (ROE) rise from 11.45% at the end of December to 19.1% at the end of June, outpacing the banking system as a whole, which saw its ROE rise from 14.23% to 15.11%, Reuters reported Thursday (Nov. 21), citing data from the central bank’s Financial Stability Report.

The central bank said the increase among the digital banks was due to “positive effects of operational leverage through the monetization of customer bases by some institutions and lower pressure from provisioning expenses.”

Brazil’s digital banks include Nubank, Banco Inter and C6 Bank, according to the report.

During a press conference, Ailton de Aquino, director of supervision at the central bank, said that digital banks have a “robust” credit model and that their evolution reflects the central bank’s efforts to promote innovation and competition, per the report.

Addressing reports that Brazil’s largest digital bank, Nubank, was considering relocating to the United Kingdom, Aquino said the central bank is “aware” of that, according to the report.

It was reported Wednesday (Nov. 20) that Nubank is considering moving its legal base to the U.K., with the bank’s holding company, Nu Holdings, working with the British government to make the move.

A spokesperson for Nubank told Bloomberg that the company “continuously reviews its corporate legal structure” and has not made a decision on the move.

Latin America is a key target for FinTechs seeking to transform financial services, with the trend driven by digitally savvy consumers, underbanked and even unbanked populations, and a regulatory environment conducive to digital innovation, PYMNTS reported in September.

In May, Banco Inter said it plans to acquire the remaining 50% of merchant acquirer Granito, giving it full ownership of the company.

“By fully owning Granito, we will further enhance our value proposition to our customers, making our financial super app a full suite of solutions to business owners and entrepreneurs,” Joao Vitor Menin, CEO of Banco Inter parent company Inter&Co, said in a press release. “It also further expands our footprint in the Brazilian market.”