(Recasts with Bradesco's view on lending rates, comments, share
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
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
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
"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
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
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
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
($1=2.22 Brazilian reais)
(Editing by Mark Potter, Chizu Nomiyama and Peter Galloway)