By Guillermo Parra-Bernal
SAO PAULO Feb 14 State-run Banco do Brasil SA
downplayed concerns over profitability trends this
year by pledging loan pricing discipline, as a steep
fourth-quarter profit miss led analysts to put their
recommendations on the stock under review.
Executives led by Chief Financial Officer Ivan Monteiro told
investors on Friday that the bank will keep defaults stable,
adjust the pricing of loans accordingly with an environment of
higher interest rates in the country and maintain a longstanding
policy of strict risk assessment of borrowers.
Loan-book growth and return-on-equity estimates could be
raised if the outlook for risk and demand for credit improves,
Banco do Brasil unveiled on Thursday guidance for loan-book
expansion between 14 percent and 18 percent this year, and
returns between 12 percent to 15 percent this year - which
analysts considered too low.
"We are assuming a conservative view," Leo Loyola, head of
investor relations at Banco do Brasil, said on the call. "While
the higher rates impact funding right away, our top line only
benefits from this situation after a lag time."
Shares of the Brasilia-based lender, the nation's largest
bank by assets, tumbled a day earlier because of the weak
earnings and concerns about future operational performance.
Recurring net income, or profit excluding one-off items, was
2.424 billion reais ($1 billion), well below the 2.606 billion
reais expected by analysts surveyed by Reuters.
Shares rose 1.0 percent on Friday, on top of Thursday's 4.9
percent slump, which was the worst daily drop since Nov. 12.
More modest disbursements coupled with efforts to expand
credit in the least-risky segments will lead to low single-digit
growth in interest income, Loyola said.
"On the asset side, given the duration of our credit
portfolio, it's hard for us to pass through the higher interest
rates," Loyola added.
On Friday, Credit Suisse Securities analysts led by Marcelo
Telles lowered their price target and recommendation on Banco do
"With low profitability and large capital requirements in
the coming years... Banco do Brasil has no option other than
fostering capital discipline, slowing down growth and working to
boost its earnings power," Telles said.
Bradesco BBI analysts led by Carlos Firetti cut their
recommendation on Banco do Brasil's shares to "market perform"
from "outperform" and put the price target under review.
Goldman Sachs Group Inc analyst Carlos Macedo also put his
recommendation and target on review, citing the "disappointing"
results and guidance.
The lender's cautious guidance comes as Brazil's economy
enters what is expected to be a fourth straight year of anemic
growth, and data points to tepid consumption and job creation
trends, which could hamper Banco do Brasil and its peers.
Recurring return on equity, a gauge of profitability among
banks, fell to 14.2 percent in the quarter, below the poll's
15.7 percent average estimate and the lowest level for the
indicator since at least 2006.