The UK mega-lender suffers from a lack of scale and poor returns in Latin America's biggest economy, and cannot get much international business out of a country with less than 2 per cent of global trade. Yet local banks may be about to enjoy one of their best years ever.
HSBC's Brazilian unit has a market share of around 2.5 per cent, and its $63 billion in assets are just 12.6 per cent of Banco do Brasil's, the country's largest bank. Its average return on equity (RoE) over the past three years was just 4.2 per cent, compared with RoE just under 20 per cent for larger peers.
Those bigger banks will probably do even better this year, according to consensus estimates compiled by Reuters. RoE is expected to hit 20 per cent at Banco Bradesco, 15 per cent at Banco do Brasil and 23 per cent at Itaú Unibanco.
Size can explain some of that. Public-sector banks, including Banco do Brasil, cranked out 15 per cent more loans in April than during the previous year, according to Barclays. Private and foreign banks were more cautious, with around 5 per cent loan growth.
But local players have also relied on the recent jump in interest rates to stoke profit. The Brazilian central bank has hiked rates by 3.25 percentage points since the start of 2014. That has provided a big boost as spreads have widened.
Bradesco's net interest income in the first quarter, for example, was 24 per cent higher than for the same period last year. American bank executives can only dream of a similar gift from the Federal Reserve.
Loan defaults, meanwhile, have not increased much. Brazilian bankers attribute that to relatively low leverage and to a drop in consumer and business confidence that helped reduce demand for credit before corporate earnings fell and unemployment rose.
Loan delinquencies, though, can take a while to increase after rate rises. The $2-trillion Brazilian economy is already expected to decline by more than 1 percentage point this year, which could sap loan demand and push riskier borrowers into trouble. That in turn could persuade the central bank to cut rates, eating into bank profit. HSBC's exit may be well timed.
HSBC's Brazilian unit has a market share of around 2.5 per cent, and its $63 billion in assets are just 12.6 per cent of Banco do Brasil's, the country's largest bank. Its average return on equity (RoE) over the past three years was just 4.2 per cent, compared with RoE just under 20 per cent for larger peers.
Those bigger banks will probably do even better this year, according to consensus estimates compiled by Reuters. RoE is expected to hit 20 per cent at Banco Bradesco, 15 per cent at Banco do Brasil and 23 per cent at Itaú Unibanco.
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But local players have also relied on the recent jump in interest rates to stoke profit. The Brazilian central bank has hiked rates by 3.25 percentage points since the start of 2014. That has provided a big boost as spreads have widened.
Bradesco's net interest income in the first quarter, for example, was 24 per cent higher than for the same period last year. American bank executives can only dream of a similar gift from the Federal Reserve.
Loan defaults, meanwhile, have not increased much. Brazilian bankers attribute that to relatively low leverage and to a drop in consumer and business confidence that helped reduce demand for credit before corporate earnings fell and unemployment rose.
Loan delinquencies, though, can take a while to increase after rate rises. The $2-trillion Brazilian economy is already expected to decline by more than 1 percentage point this year, which could sap loan demand and push riskier borrowers into trouble. That in turn could persuade the central bank to cut rates, eating into bank profit. HSBC's exit may be well timed.