Jefferies highlighted payroll-lending dynamics, asset-quality deterioration and widening profitability dispersion among Brazilian banks as the focal points of market discussion last week, noting that credit trends have become the central concern as hopes for policy rate reductions have diminished.
The firm warned that regulatory steps aimed at curbing the expansion of payroll-secured credit could produce unintended market responses. Jefferies said specialized lenders may move to offer unsecured loans that top up borrowers' payroll credit limits, but at substantially higher spreads. In the INSS segment, unsecured lending rates can run at more than four times payroll loan rates, creating clear incentives for lenders to pivot toward higher-yield unsecured products.
Jefferies' analysis pointed to rapid growth in the private payroll market. The private payroll stock expanded from roughly 40 billion Brazilian reals to about 102 billion reals in just over a year, the firm reported. That shift has coincided with a sharp decline in concentration: market share held by five incumbent banks dropped from approximately 76% to roughly 41% since the first quarter of 2025, underscoring aggressive entry by smaller private competitors into the payroll segment.
Inter & Co's experience in this market illustrated associated risks. Jefferies estimated that Inter & Co's private payroll cost of risk reached about 17% in the first quarter of 2026. That elevated cost of risk represented roughly one-third of the sequential increase in the group's overall cost of risk, despite private payroll exposure accounting for only about 4% of the firm's total risk-weighted exposure.
Profitability differentials across larger banks were also a key focus. Jefferies' data showed that Bradesco now contributes about 26% of Itau Unibanco's banking profits, a marked decline from roughly 80% in the first quarter of 2022. On a pre-tax return on risk-weighted assets basis, adjusted figures place Bradesco at around 1.4%, Itau at approximately 4%, and Santander Brasil at roughly 2.4%. Jefferies noted that Bradesco disclosed last week it has adopted a more conservative risk appetite.
On asset quality, Jefferies reported that both Santander Brasil and Bradesco experienced an increase in non-performing loan formation of about 30 basis points quarter-over-quarter. Bradesco further disclosed that its corporate cost of risk doubled sequentially, which Jefferies said implies an approximate 20 basis-point quarterly increase in retail cost of risk.
Funding trends diverged across the major banks, according to the firm. Santander Brasil's funding growth was characterized as low single digits, while both Itau and Bradesco delivered growth in excess of 15%. Demand deposits at Santander fell by around 45% year-over-year, compared with 5% and 12% increases at Itau and Bradesco, respectively. Santander management attributed the drop in demand deposits to a deliberate strategy to optimize funding costs by reshaping the deposit mix.
Collectively, Jefferies framed these developments as a set of credit, funding and profitability signals that will likely shape investor and regulatory attention in coming periods, particularly as monetary easing appears less imminent.