Brazil's banks' profitability outlook is positive for 2024, says central bank

BRASILIA, April 30 (Reuters) - The profitability of banks in Brazil showed a modest recovery in the second half of last year and presents a slightly positive outlook for 2024, the central bank said on Tuesday.

In its Financial Stability Report, the central bank showed that the return on equity (ROE) for the country's banking system rose to 14.06% in the 12 months to December, from 13.60% in June.

Despite the improvement, this was the lowest year-end level since 2020's 11.06%, under the effects of the COVID pandemic.

"The outlook for profitability in 2024 is a slight trend of improvement," the central bank wrote in the report.

"The evolution of the quality of credit concessions should reduce credit risk and, consequently, the pressure on results from provisions."

Policymakers emphasized that the monetary easing cycle, which has already lowered the benchmark interest rate by 300 basis points since August to 10.75%, reduces banks' expenses on funding, stimulates demand for credit and mitigates credit risk.

In addition to that, the cooling of inflation, which decelerated to 3.77% in mid-April, has a positive impact on operational costs, said the central bank.

Policymakers highlighted that the dynamism of economic activity at the beginning of this year was slightly higher than expected and pointed out that the risk appetite of financial institutions, which had been decreasing, now shows stability. (Reporting by Marcela Ayres; Editing by Chizu Nomiyama)