(Recasts with Bradesco's view on lending rates, comments, share performance)
By Guillermo Parra-Bernal and Aluísio Alves
April 24 Banco Bradesco SA is wary about raising lending interest rates even if funding costs in Brazil stay high, executives said on Thursday, a signal the nation's No. 2 private-sector bank wants to protect market share as competition mounts.
The bank wants to stay "competitive" in segments presenting attractive growth opportunities, such as payroll loans, Chief Financial Officer Luiz Carlos Angelotti said on a conference call to discuss the bank's first-quarter results. He suggested that raising lending rates may not be the only way to compensate Bradesco for a higher cost of funding.
"You have to gauge it carefully, especially under these circumstances," Angelotti said .
His remarks illustrate the difficulties Bradesco faces in raising customer borrowing costs despite a year-long central bank monetary tightening cycle. Policymakers have lifted the benchmark Selic overnight rate by about 3.5 percentage points in the past year, triggering a 5 percentage point jump in lending rates.
Earlier in the day, Bradesco reported a quarterly profit that beat forecasts in a Reuters poll, even though the bank failed to stem a decline in interest income or to revive loan disbursements.
Bradesco's recurring net income, or profit excluding one-time items, rose to 3.47 billion reais ($1.56 billion) in the first quarter, beating the 3.38 billion reais estimate of six analysts surveyed.
Performance was mixed: interest income slipped for the first time in three quarters, trading-related gains slumped, and early default data deteriorated. But expenses fell to a one-year low and net interest margin, the average rate charged on loans, was stable.
"Operating trends were mostly positive, with the notable exception of net interest income, which was surprisingly low," said Saúl Martínez, a senior analyst at JPMorgan Securities in New York.
Interest income, or revenue from loan-related transactions, fell 0.3 percent on a quarter-on-quarter basis, while income from the purchase and sale of financial securities tumbled 96 percent in the same period. Fee income, or revenue from the offering of financial services other than loans, rose a lower-than-expected 1.1 percent.
The drop in interest income came despite Bradesco's growth in loans, which went up 1.2 percent on a quarterly basis, and 10.8 percent year-on-year, which was within the bank's 10 percent to 14 percent lending expansion target for this year.
Bradesco will step up lending even as activity in Latin America's biggest economy remains sluggish, Chief Executive Officer Luiz Carlos Trabuco said on the call. Claims that households are drowing in debt are overdone, he said.
Preferred shares of Bradesco were up 1.5 percent on Thursday afternoon. The stock has soared 24 percent in the past three months on optimism the bank's earnings would be able to absorb the impact of the Selic rate increases.
The analysts surveyed by Reuters said they expected Bradesco's profit growth and return on equity (ROE) - a gauge of profitability that measures how well banks spend shareholder money - to be the strongest among Brazil's four largest listed lenders.
Bradesco's ROE rose to 20.5 percent in the first quarter, the highest level in seven quarters, above the poll's estimate of 18.8 percent. In the previous quarter, Bradesco's ROE was 18 percent.
The bank ended March with outstanding loans of 432.3 billion reais. Disbursements of corporate loans rose 10.1 percent in the past 12 months, within Bradesco's guidance of between 9 percent and 13 percent, while consumer credit rose 12.1 percent, in line with guidance of 11 percent to 15 percent this year.
Operating expenses fell 7.5 percent in the quarter, beating the poll's estimates. A decline in the 90-day default ratio allowed Bradesco to cut loan-loss provision expenses by 3.4 percent, more than expected in the poll.
Loans in arrears between 61 days and 90 days, a leading indicator for future defaults, jumped to 0.9 percent of Bradesco's outstanding loans from 0.7 percent. Angelotti pointed to a "seasonal jump" in consumer credit delinquencies and a number of "specific events" in the corporate segment, without elaborating.
($1=2.22 Brazilian reais) (Editing by Mark Potter, Chizu Nomiyama and Peter Galloway)