Banco Bradesco’s Healthy Reserve Levels Remain Intact in 2022 but Uncertainty Remains

We believe macroeconomic and geopolitical uncertainty cast a shadow on Banco Bradesco and the entire Brazilian banking industry. While the largest problem facing Brazil has historically been its ballooning pension obligations, which represented 13% of its GDP in 2019 and nearly half of the government's budget, the Bolsonaro government was finally able to pass a bipartisan reform in the back half of 2019. While the reform is encouraging, much of the benefit has already been undone through heavy government spending in 2020 and 2021. The residual drag from bloated pension obligations and coronavirus stimulus measures will be acutely felt moving forward, with gross public debt/GDP rising from 52% in 2013 to 99% by the end of 2020.