Banks lose space on the Ibovespa and return to the level of the Dilma government

High interest rates may lead part of the population to see banks as major beneficiaries of the high cost of credit. This may even be true from certain points of view, but the reality is different in the stock market.

The sector of the Stock Exchange made up of banking institutions lost in November the position of the segment with the highest participation in the composition of the Ibovespa, in which it had remained since 2013, according to a survey by TradeMap.

On the 11th of last month, two days after the biggest drop in two decades for Bradesco shares, shares related to mining jumped to first place among the sectors with the greatest weight in the reference index of the Brazilian stock market, with a participation of 19 .6%.

Banks fell to second place (17.6%). The third position remained with oil exploration and refining (14%).

The almost 18% drop in Bradesco’s preferred shares, motivated by the release of a disappointing result in the third quarter, spread pessimism among investors regarding shares across the sector, but this group’s loss of space on the Ibovespa has been constant since 2019, even at the beginning of the government of Jair Bolsonaro (PL).

It is a fact that the situation worsened with the arrival of the Covid-19 pandemic, but it even sank from March of this year, when the Central Bank began an aggressive increase in the basic interest rate to contain inflation. The Selic jumped from 2% to 13.75% between February and August.

The survey by Einar Rivero, manager of TradeMap, shows that the banking sector reached the peak of the last 20 years in December 2018, when it represented 31% of the Ibovespa.

In February 2020, before the start of the health crisis, it had already fallen to 24%. Finally, last November, it slipped to 17.85% and, with the exception of the 17.75% recorded in December 2021, it reached the lowest level since December 2013, still in the first term of former President Dilma Rousseff (PT).

Among the political crises and economic upheavals that weakened investors’ faith in bank shares, high interest rates were the determining factor in driving them away, according to Acilio Marinello, coordinator of the MBA in digital banking at Trevisan Escola de Negócios.

“On the one hand, high interest rates benefit banks because they are great buyers of government bonds and, if interest rates rise, the returns on these bonds also increase”, says Marinello.

“But that same rise in interest rates is not beneficial in the relationship of banks with individuals and companies in the private sector because it increases the risk of default and, moreover, the cost of credit reduces the potential for expanding the supply of loans”, he adds. .

That is, even if banks can earn more by charging higher interest rates, the public to which they can offer loans and financing is reduced when the context is monetary tightening, according to the expert. Careless analysis in the concession can result in the growth of defaults.

Marinello recalls that the panic generated by Bradesco’s balance sheet was precisely related to the revelation that there was an increase in provisions to deal with debtors considered doubtful as to their ability to pay. “It’s a situation that reduces earnings and lowers dividend payouts, driving investors away,” he said.

On the day the market reacted to Bradesco’s balance sheet, TradeMap reported that the banking segment lost R$54.2 billion in market value in the trading session of November 9th.

Bradesco alone dropped R$30.7 billion. Itaú lost R$13.1 billion and Santander, R$6.22 billion.

Bradesco’s preferred shares fell 17.38%, the second biggest daily drop since the beginning of the Real Plan, in June 1994.