* Recurring profit up 20 percent, above poll estimate
* Bank to boost loan book at faster pace than rivals
* Interest income surprisingly climbs; defaults fall
(Adds details, comments from executives, analysts in paragraph
By Guillermo Parra-Bernal and Aluísio Alves
SAO PAULO, Feb 21 State-controlled Banco do
Brasil SA said on Thursday it plans to boost lending
this year at a faster pace than rivals, betting that a
recovering economy, falling delinquencies and aggressive market
share gains will bolster profit for the country's largest bank.
Disbursements may expand between 16 percent and 20 percent
in 2013, slower than last year's 23.1 percent growth, but still
far more quickly than the country's major private-sector banks.
Banco do Brasil's loan book, which totaled 525.7 billion reais
($268 billion) in 2012, is Brazil's largest.
Betting that delinquencies will remain stable this year,
Banco do Brasil plans to aggressively grow mortgage lending as
faster economic growth helps propel "massively" funding of
infrastructure projects, Chief Executive Aldemir Bendine said at
an event to discuss fourth-quarter earnings.
Despite the strain that such fast growth might create on the
bank's capital base, Bendine said profitability this year could
top management estimates. Banco do Brasil projects return on
equity (ROE), a widely-followed gauge of profitability among
banks, between 14 percent and 17 percent this year.
"If our performance tops expectations in the first months of
the year, don't be surprised if we move that guidance range up,"
Bendine told reporters.
Banco do Brasil reported earlier on Thursday
higher-than-expected fourth-quarter earnings because of a drop
in bad-loan provisions and increased charges to borrowers on the
back of robust lending growth.
Recurring profit, which excludes one-time items, rose 20
percent to 3.180 billion reais ($1.6 billion) from the prior
quarter, according to a securities filing. A Thomson Reuters
poll of four analysts had forecast 2.464 billion reais.
Return on equity climbed to 21.2 percent in the fourth
quarter from 18.1 percent in the prior quarter. The average
estimate in the Reuters poll was 16.1 percent.
The bank's shares posted their biggest intraday gain in more
than two months, after the company posted fourth-quarter profit
that beat analysts' expectations. The stock rose as much as 3.7
percent to 25.20 reais, the second gain in three sessions.
Banco do Brasil, likewise its biggest shareholder, the
federal government, is betting on a recovery across-the-board in
an economy that has underperformed for the past two years.
Brazilian President Dilma Rousseff has used the bank as a tool
to kick-start the economy, in a strategy that has been
questioned as too risky by financial industry analysts.
Net interest income surged 12 percent, running counter to
trends among Banco do Brasil's rivals, as the lender charged
more interest for some loans.
Net interest margin, or the interest earned from loans
excluding funding costs, rose slightly to 5.1 percent from 5
percent in the third quarter even after borrowing costs in Latin
America's largest economy fell to a record low.
While these margins, known as NIMs, are falling for all
banks in Brazil as Rousseff presses lenders to cut borrowing
costs, margin compression at Banco do Brasil has been
surprisingly milder than at private-sector rivals despite its
aggressive commercial approach.
"Overall results were encouraging, especially as NIMs and
asset quality remained stable," said Mario Pierry, an analyst
with Deutsche Bank Securities.
But some analysts questioned the quality of Banco do
Brasil's profit beat, saying some trends are unsustainable.
Trading-related revenue almost doubled on a quarterly basis,
while recoveries of non-performing loans were higher than
expected in the poll. Those two items, coupled with a decline in
provisions for legal suits in the quarter, propped earnings in
an abnormal way.
"The lines which explain the beat to our numbers were not
really high-quality lines," said Credit Suisse Group analyst
Marcelo Telles. "Additionally, Banco do Brasil has been growing
its loan portfolio very aggressively in an environment of still
sluggish economic growth and higher consumer leverage - a pickup
in provisions is yet to come, which would lead to decline in
The bank's loan book expanded 9.3 percent on a sequential
quarter-on-quarter basis and 24 percent from a year earlier,
well above the 2 percent to 4 growth posted by private-sector
rivals. Lending growth was driven by corporate loans, which rose
12 percent on a quarter-on-quarter basis, and agriculture
lending, up 10 percent. Consumer loans grew at a more moderate
pace of 6 percent.
Unlike Itaú Unibanco Holding SA, the nation's
largest private-sector lender, Banco do Brasil stepped up
lending both in risky segments, such as auto loans and mid-sized
companies, and safer products like mortgage and
paycheck-deductible credit where spreads tend to be smaller but
defaults are less likely.
Bolstering recurring profit, Banco do Brasil cut provisions
on nonperforming loans by 3.4 percent from the third quarter
after short-, medium- and long-term defaults fell. Loans in
arrears for 90 days or more, a benchmark gauge for delinquencies
in Brazil's financial industry, fell to 2.1 percent of
outstanding credit from 2.2 percent in the previous three
Net interest income should grow between 7 percent and 10
percent, while income from non-lending financial services - a
category of revenue known as fee income - is expected to come
between 10 percent and 14 percent.
($1 = 1.96 Brazilian reais)
(Reporting by Guillermo Parra-Bernal; Editing by Lisa Von Ahn
and W Simon)