* Profit largely unchanged in quarter, annual
* Profit, lending growth miss poll estimates
* Trims loan growth guidance for consumers, firms
* Preferred shares slide 5.5 percent
By Guillermo Parra-Bernal
SAO PAULO, July 23 Banco Bradesco SA
on Monday cut its lending growth projections
for this year as an abrupt economic downturn and a jump in loan
delinquencies led Brazil's No. 2 private sector bank to miss
second-quarter profit estimates.
The Osasco, Brazil-based bank also signaled plans to boost
revenue in areas other than credit and said it expects its loan
book to grow 14 percent to 18 percent this year, down from a
prior range of 18 percent to 22 percent.
The revision underscores growing caution among local bankers
as Brazil enters what could be a second year of below-trend
economic growth. The central bank sees bank lending growing 15
percent this year, down from about 18 percent in 2011, as
consumers rein in debt and the economy cools not long after it
appeared to overheat.
Bradesco missed most second-quarter profit as bad loan
provisions hit the highest in more than two years after the
fifth straight quarter of rising delinquencies. The profit miss
and the worsening of Spain's public finances problems sent
Bradesco preferred shares down 5.5 percent.
Despite that, revenue jumped even as interest rates in Latin
America's largest economy fell to an all-time low.
Second-quarter net income rose 1.7 percent to 2.83 billion
reais ($1.40 billion) from a year earlier, but missed the
average estimate of 2.92 billion reais in a Reuters poll of 11
An increase in fee, insurance and trading-related income
helped offset lower interest rates, a jump in bad loan
provisions and higher payroll expenses. On a quarter-to-quarter
basis -- the gauge of operating performance most widely followed
by analysts -- profit rose 1.4 percent.
Net interest income -- revenue from lending operations and
the sale and purchase of financial securities -- jumped 16.5
percent from a year earlier, while fee income, or revenue from
financial services, climbed 14 percent.
"Top-line trends were generally good, especially considering
ample market concern about spread pressure," a team of JPMorgan
Securities analysts led by New York-based Saul Martínez wrote in
a client note.
Loans in arrears for more than 90 days -- an industry gauge
for credit delinquencies -- rose within expectations. The
so-called default ratio rose to 4.2 percent of Bradesco's total
loans at the end of June from 4.1 percent in the first quarter
and 3.7 percent a year earlier.
"We see the trend in non-performing loans stabilizing and
then declining in the upcoming quarters," Chief Executive Luiz
Carlos Trabuco said on a conference call to discuss the results.
Behind the ratio increase was a considerable deterioration
in the credit quality of corporate loans. The 90-day
non-performing loan ratio for corporate loans jumped by half a
percentage point to 0.9 percent -- significantly driving up the
riskiest segment of its loan book, known as the E-H loan
"It is nothing that we see as worrisome," Trabuco said of
the spike in corporate loan defaults.
The bank set aside more to cover bad loans. Provisions rose
39.8 percent from a year earlier and 10.1 percent from the prior
quarter -- to 3.41 billion reais.
The bulk-up in provisions pushed return on equity (ROE) to
its lowest level since at least the start of 2010. The
profitability measure slid to 20.6 percent from 23.2 percent a
year earlier and 21.4 percent in the prior quarter.
The Reuters poll predicted ROE at 20 percent -- a level that
Trabuco sees as a "target that can be attained by our
organization" in the coming quarters.
Excluding one-time items, earnings rose 1.5 percent to 2.87
billion reais. Analysts expected 2.92 billion reais, according
to the poll.
Despite the earnings miss, some numbers were viewed as
encouraging, which might stoke investor hopes that the worst is
over for a deterioration in the quality of Bradesco's loan
portfolio, the nation's economic slowdown and government
pressure on the sector to lower rates.
Among Brazil's largest banks, only Bradesco shares have not
fallen in 2012.
The bank's preferred stock is up 0.5 percent this year,
compared with a 2.6 percent decline in the MSCI Brazil Large
Since April, Brazil President Dilma Rousseff has demanded
private-sector banks boost lending and cut rates to help revive
an ailing economy.
State-controlled banks Banco do Brasil, the
nation's largest, and Caixa Econômica Federal did so to
force rivals to follow suit.
Still, CEO Trabuco's efforts to improve the quality of the
company's loan book mix paid off. The average interest rate the
bank charges for all lending transactions remained stable at 7.9
percent in the quarter, despite a decline in Brazil's benchmark
Selic overnight lending rate to a record low.
Bradesco kept its 2012 projection for net financial margin
growth at 10 percent to 14 percent, the equivalent to gross
financial margin in a nonfinancial company.
The bank is reining in disbursements in riskier segments
like auto loans and focusing on mortgages and
paycheck-deductible lending -- two segments that charge lower
rates but are less likely to default.
That is helping to stabilize defaults among individuals, the
bank added. Bradesco's ratio for overdue loans between 61 days
and 90 days, a predictor of future trends in defaults, remained
stable at 1 percent in June for the fourth month in a row.
While delinquencies for small-sized companies and
individuals, a key source of concern in recent quarters, were
stable sequentially, higher corporate loan defaults signaled the
segment might be under strain as economic growth falters.
Bradesco expects fee income to expand this year by 10
percent to 14 percent, from a prior estimate of 8 percent to 12
It stuck with its expectation for an increase in payroll,
sales and administrative expenses at 8 percent to 12 percent.
The company's loan book rose 14.1 percent to 364.96 billion
reais from a year earlier, about 1.6 percent below analysts'