Brazil Diversified Banks: Taking a Cautious Stance: ITUB and BPAC Stand Out

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Brazil Diversified Banks: Taking a Cautious Stance: ITUB and BPAC Stand Out

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23 Jun 2026 21:14:44 ET │ 41 pages

Brazil Diversified Banks

Taking a Cautious Stance: ITUB and BPAC Stand Out

CITI'S TAKE

Gustavo Schroden AC

We turn more cautious on Brazilian banks as the macro backdrop +55-11-4009-5858

deteriorates, with rising asset quality pressures, particularly in consumer gustavo.schroden@citi.com

credit and agribusiness. The recent share price de-rating reflects a

correction after early-year rally, a signal that investors are anticipating Brian Flores, CFA AC

weaker macro backdrop and asset quality pressures. We reduce our target +55-11-4009-2842

price to reflect a higher cost of equity assumption, driven by the upward luis.brian.flores@citi.com

shift in the yield curve and expectations of higher interest rates for longer.

We remain selective, with ITUB and BPAC as our top picks, where we believe Arnon Shirazi, CFA

consistent execution will pay off and where current valuations appear +55-11-4009-7906

dislocated. BBAS and SANB remain our least preferred names. arnon.shirazi@citi.com

Tougher macro pressuring asset quality — A tougher macro backdrop is pressuring

asset quality across the Brazilian banking system. We observe a systemic increase in

problematic assets and provision expenses, particularly from digital players. NPLs

are rising, driven by individuals, with specific pressure points in auto loans, credit

cards, and non-payroll loans. While aggregate family indebtedness is stable (at high

levels), debt service is increasing for lower-income segments, suggesting

concentrated, not systemic, pressure for now. However, Brazil’s higher-for-longer

interest rate environment warrants caution on the corporate side. Therefore, it is