Brazil's Bradesco sets cautious goals as profit miss highlights challenges (updated)

Banco Bradesco

02/02/2017 11:47

* Sees 1 pct-5 pct loan book growth, similar to 2016 
    * Nudges down LLP range to 21 bln reais-24 bln reais 
    * Recurring profit of 4.4 bln reais misses estimates 
 
 (Recasts to add comments, details throughout) 
    By Guillermo Parra-Bernal 
    SAO PAULO, Feb 2 (Reuters) - Banco Bradesco SA  BBDC4.SA  
sees slow lending growth and high loan-loss provisions this 
year, signaling Brazil's No. 3 bank remains cautious over the 
pace of economic recovery and the ability of households and 
companies to take on new borrowing. 
    In a statement on Thursday, the Osasco, Brazil-based lender 
forecast loan book growth of 1 percent to 5 percent this year, 
similar to last year's adjusted goal. It also nudged down a 
range for projected provisions from last year, when it hiked 
them by 43 percent as loan defaults soared.  urn:newsml:reuters.com:*:nE6N18202E 
    Banks in Brazil are struggling with the country's longest 
and harshest recession since 1901 and fallout from a sweeping 
corruption probe into state firms and large corporate borrowers. 
Both have contributed to a three-fold jump in Brazilian 
bankruptcy filings over the past couple of years.  urn:newsml:reuters.com:*:nL1N1F218W 
    An unexpected impairment in the value of financial 
securities as well as costs linked to the integration of a 
business bought from HSBC Holdings Plc had a mixed effect on 
fourth-quarter profit, which missed estimates.  
    Net income excluding one-off items reached 4.385 billion 
reais ($1.4 billion) last quarter, down 1.7 percent from the 
prior three months. Recurring profit came in below a consensus 
forecast of 4.578 billion reais compiled by Thomson Reuters. 
    By setting conservative goals for operational performance 
this year, Chief Executive Officer Luiz Carlos Trabuco may be 
signaling the challenges facing Bradesco as more companies seek 
to refinance looming obligations and unemployment makes it 
harder for households to keep up debt repayments, analysts said. 
    "With new guidance suggesting provisions will remain 
elevated this year, we expect a negative market reaction" to the 
numbers, said Philip Finch, a strategist and senior banking 
analyst with UBS Securities in London. 
    Management plans to discuss results at a conference call 
later in the day. 
     
    SLOW RECOVERY 
    Loans in arrears for 90 days or more, a benchmark for 
defaults, unexpectedly rose to 5.5 percent of outstanding credit 
last quarter. Consensus estimates put the so-called default 
ratio at 5.1 percent. 
    Despite that, provisions fell 4 percent to 5.525 billion 
reais, beating consensus of 5.732 billion reais. Bradesco said 
"stricter credit risk assessment" helped keep provisions in 
check and stem the impact of rising corporate defaults. 
    While Brazil's economy is showing recovery signs, a revival 
of credit among individuals and companies could be slow. 
Confidence and activity indicators have recently shown improved 
readings, but data suggests credit markets face more headwinds. 
    Hedge fund managers such as Adam Capital's Márcio Appel said 
this week at a Credit Suisse Group AG summit that credit 
aversion would delay Brazil's emergence from recession, forcing 
the central bank to keep cutting interest rates for a longer 
period than initially thought. 
    "A weak economy means lower rates for longer," said Appel, 
who oversees about 9 billion reais in assets for Rio de 
Janeiro-based Adam.  
    Interest income fell more than expected in the wake of a 1.2 
billion-real reduction in the value of financial securities 
Bradesco holds. Interest income dropped 7 percent last quarter, 
while administrative and general expenses climbed 2 percent, 
also missing consensus estimates. 
    Lower rates usually hamper banks' ability to reprice loans. 
Last quarter, net interest margin - or the average rate Bradesco 
charges on borrowers - fell slightly to 7.5 percent. 
    ($1 = 3.1285 reais) 
 
 (Reporting by Guillermo Parra-Bernal; Editing by David Goodman 
and Mark Potter) 
 ((guillermo.parra@tr.com; Tel: +55-11-5644-7714; Mob: 
+55-119-8346-7153; Reuters Messaging: 
guillermo.parra.thomsonreuters.com@reuters.net)) 
 
Keywords: BANCO BRADESCO RESULTS/