UPDATE 1-Santander Brasil loan defaults show signs of improving -CFO

Wed Feb 27, 2013 2:45pm EST

SAO PAULO Feb 27 (Reuters) - Santander Brasil's Chief Financial Officer Carlos Galán said on Wednesday that the bank's loan default rates, especially in the consumer sector, were showing early signs of improvement and should decline through 2013.

The executive said that the bank's local shares had not performed as well as expected but added that Brazilian banking shares were narrowing their discount relative to their regional peers.

Fourth-quarter profit at Santander Brasil disappointed investors despite beating analysts' expectations, raising questions about the ability of Brazil's largest foreign lender to stem the impact of record-low borrowing costs and rising delinquencies.

Interest income dropped to the lowest level in a year, fee income rose but fell short of expectations, and expenses topped analysts' forecasts, the bank reported on Jan. 31. The results confirmed the extent to which lower interest rates are weighing on profits and highlighted the bank's struggles in dealing with stubborn defaults as the Brazilian economy enters a third year of sub-par growth.

Loans in arrears for 90 days or more, the benchmark for delinquencies, rose to the equivalent of 5.5 percent of its loan book in the fourth quarter, compared with 5.1 percent in the third quarter. Analysts expected a so-called default ratio of 5.2 percent.

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