UPDATE 2-Banco do Brasil sees stable spreads, faster revenue gains

Thu Aug 14, 2014 12:51pm EDT

(Recasts to add forecast on spreads, loan book trends, comments)

By Guillermo Parra-Bernal and Aluísio Alves

SAO PAULO Aug 14 (Reuters) - State-run Banco do Brasil SA is unlikely to raise borrowing costs to boost interest income in coming quarters, Chief Financial Officer Ivan Monteiro said on Thursday, as Brazil's largest bank by assets relies on faster disbursements of farming loans to outpace rivals.

Interest income, or revenue from loan-related transactions, will keep rising this year as the Brasilia-based bank refinances farming loans at a faster pace than for individuals and companies, he said. Banco do Brasil controls 66 percent of Brazil's market for agribusiness credit.

Monteiro expects net interest margin, or the average interest rate a bank charges on loans, to remain around the 4.1 percent of the second quarter. Earlier in the day, the bank beat second-quarter profit estimates by a large margin.

"We are comfortable with the level of our spreads, so it would be plausible to say that most growth will come mainly from our greater capacity to originate more loans in the segments we perceive that demand remains healthy," Monteiro said at an event to discuss second-quarter earnings.

Shares rose 4.1 percent as investors lauded Chief Executive Officer Aldemir Bendine's efforts to restore profitability without resorting to aggressive increases in borrowing costs, as was the case with the bank's private-sector rivals.

Recurring profit, which excludes one-time items, reached 3.002 billion reais ($1.32 billion), up 23.2 percent from the first quarter and 14 percent from a year earlier, according to a securities filing. The average estimate in a Reuters poll was 2.579 billion reais.

Recurring return on equity reached 17.1 percent in the quarter, well above the poll's 14 percent average estimate. The reading was the highest since the first quarter of last year.

Efforts to propel revenue from financial services drove fee income to a near all-time high in the quarter. Expense growth remained well below annual inflation trends, while profitability, long viewed by analysts as the bank's weakest link, was the best in five quarters.

Management raised its outlook for this year's recurring return on equity, the bank's preferred gauge of profitability, to a range of 14 percent to 17 percent from a forecast of 12 percent to 15 percent in February. Estimates for gross growth in interest income were raised to between 5 percent and 9 percent from a prior range of 3 percent to 7 percent.

Banco do Brasil maintained its estimate for loan book growth this year at 14 percent to 18 percent, well above that of peers.

Interest income rose 4.4 percent on a quarterly basis, compared with the poll's 0.7 percent estimate. Fee income rose 7.5 percent on a quarterly basis, above the poll's 3.2 percent forecast.

Loan-loss provisions rose 9.1 percent, twice as quickly as the poll had forecast. The 90-day default ratio, the most widely followed indicator for delinquencies, fell to 1.99 percent, in line with expectations.

($1 = 2.28 Brazilian reais) (Reporting by Guillermo Parra-Bernal; Editing by Dan Grebler)

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