UPDATE 3-Banco do Brasil sees growth in consumer loans slowing

Tue Nov 12, 2013 10:27am EST

By Natalia Gómez

SAO PAULO Nov 12 (Reuters) - Banco do Brasil, Latin America's largest bank, expects to disburse consumer loans at a slower pace for the rest of the year because of weak demand for credit among indebted households and increasing competition.

The state-run bank lowered its forecast for consumer loan growth to between 14 percent and 18 percent from a prior estimate of 16 percent to 20 percent, according to a securities filing on Tuesday. On the same day, Banco do Brasil reported a stronger-than-expected third-quarter profit, bolstered by robust fee income and trading-related revenue.

Chief Financial Officer Ivan Monteiro said the revised outlook resulted from "less demand and more competition," not from the federal government's order to state banks to scale back disbursements in an effort to maintain fiscal discipline.

However, the lender increased its estimate of 2013 agribusiness loan growth to a range of 24 percent to 28 percent. As a result, it stood by its forecast of 17 percent and 21 percent growth for its consolidated loan book.

Third-quarter recurring profit, which excludes one-time items, totaled 2.61 billion reais ($1.12 billion), down 0.9 percent from the second quarter and 1.8 percent from a year earlier, according to a securities filing. Seven analysts in a Thomson Reuters poll had forecast 2.53 billion reais.

President Dilma Rousseff has used Banco do Brasil and other state-run lenders to cut credit costs in Brazil, which remain among the world's highest, and to foster competition with private-sector banks. But she has recently indicated that lending growth should cool after the cost of pouring capital into state banks grew considerably over the past year, fueling concerns of a credit downgrade.

Monteiro said Banco do Brasil's board had yet to determine forecasts for 2014.

Still, he said growth in mortgage and farming loans should lose momentum next year. Mortgage credit is one of the fastest-growing lending segments in Brazil's banking system these days.

Shares of Banco do Brasil, which at Monday's close were up 19.2 percent this year, dropped 4.5 percent to 26.82 reais on Tuesday. The benchmark Bovespa stock index was down 0.6 percent.

EARNINGS BEAT

While the bank's third-quarter profit declined on both a quarterly and annual basis, it beat analysts' forecasts, in large part because of lower provisions for bad loans.

Provisions fell 7 percent from the second quarter, offsetting a 2 percent drop in fee income, a jump in funding costs and slightly higher sales, general and administrative expenses.

Banco do Brasil cut its estimate for gross interest income growth this year to between 2 percent and 5 percent, down from a previous range of 4 percent to 7 percent.

Net interest margin, or the average interest rate earned from loans, declined 0.2 percentage points to 4.4 percent. Banco do Brasil's cost of raising money increased as the central bank hiked interest rates to head off inflation.

The bank's loan book, the largest in Brazil's financial system, totaled 585.05 billion reais at the end of September, an increase of 21.7 percent from a year earlier. Banco do Brasil's 90-day default ratio slightly rose to 1.97 percent in the third quarter from 1.87 percent in the second quarter.

"With margins weakening and asset quality taking a negative turn, the bank appears to be on an opposite cycle from private- sector peers," Goldman Sachs analyst Carlos Macedo said in a client note. "The size and magnitude of this cycle is still not clear, but the trend is negative and could limit earnings-per-share growth in the near term."

Banco do Brasil is betting on a recovery across the board for an economy that is underperforming for the third year in a row. The decision by Banco do Brasil to lower its forecast came as private-sector peers have kept or cut their own outlooks due to slowing demand for credit and flagging economic activity.

The bank is considering selling global bonds in currencies other than the U.S. dollar before the end of the year, Monteiro said.

Banco do Brasil is not considering listing its card unit, he added. Such a move has been the center of speculation.

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