While a crisis brought on by liquidity risk has been threatening the US banking system, Brazilian banks have been having an easier time of late. They have navigated the large securities losses generated by a rapid rise in rates – yields in 2026 government securities have risen to 12.5% in early March from 6.3% at the end of the 2020 – but with the majority of the steep rise occurring at the end of 2021, the negative impact on mark-to-market, available-for-sale securities was absorbed during 2022 and 2021.
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Few analysts expect a liquidity crisis sparked by losses in these assets similar to what has recently been seen in the US. And while there is pressure on deposits, loan-to-values are well within comfortable ranges throughout the system, so it is hard to see where or when a bank would need to sell underwater securities and make those paper losses real.
However, while the country’s banks seem to have deftly side-stepped this risk (and the banking sector is long schooled on managing securities risks, with the top three private players having an average of 32% of their assets comprised of bond portfolios), they seem to be failing a more commonplace test: credit risk.
