* Recurring profit 2.92 bln reais, misses poll estimate
* Provisions fall from third quarter, helping net income
* Loan book expands slightly below guidance for last year
* Stock drops for third straight day, sheds 1.1 percent
By Guillermo Parra-Bernal
SAO PAULO, Jan 28 Banco Bradesco SA forecast
modest lending growth this year after a small decline in
provisions, stubborn loan delinquencies and a continuing squeeze
on margins led Brazil's No. 2 private sector bank to miss
fourth-quarter profit estimates.
Bradesco on Monday projected credit growth
for this year between 13 percent and 17 percent. The bank's loan
book expanded 11.5 percent last year, below guidance of 14
percent to 18 percent provided to investors last July.
The forecast underscores growing caution among
private-sector lenders as Brazil's economy enters what could be
the third consecutive year of below-trend economic growth.
Bradesco is reining in disbursements in riskier segments like
auto loans and focusing on mortgages and paycheck-deductible
lending -- areas where interest rates tend to be lower but
defaults are less likely.
"We feel that our policy of disbursements is adequate ... We
are not putting the brakes on credit," Chief Executive Luiz
Carlos Trabuco told reporters in a conference call to discuss
Profit at Bradesco slightly missed analysts' estimates as
lower insurance-related income and higher operating expenses
offset the positive impact of a decline in bad loan provisions.
The lender earned recurring profit, or net income excluding
one-time items, of 2.918 billion reais ($1.44 billion) in the
quarter, up 0.9 percent from the prior three months. The number
was below the average estimate of 2.950 billion reais in a
Thomson Reuters poll of six analysts.
Provisions fell a smaller-than-expected 2.8 percent from the
third quarter but remained at still-high levels. Insurance
income, or the difference between underwritten premiums and
casualties, sank 7.2 percent from the prior quarter and expenses
rose, all of which limited profit gains.
"We expect a slightly negative reaction from markets," UBS
Securities analysts led by Philip Finch wrote in a client note.
"Elevated loan-loss provisions were the main reason for the
Preferred shares of Bradesco fell for a third straight day
on Monday. The stock shed 1.7 percent to 37.13 reais, the lowest
level in about two weeks.
Last year, Bradesco's loan book rose to 385.53 billion
reais, slightly below management guidance. Trabuco said the rise
was less than expected partly because the slowing Brazilian
economy sapped demand for new credit among companies and
"We are optimistic that this year things will get better on
the credit front," Trabuco noted.
Loans in arrears for more than 90 days, a gauge for credit
delinquencies, remained unchanged for a second straight quarter.
The default ratio was 4 percent of Bradesco's total loans in the
fourth quarter, in line with forecasts.
Defaults will ease only gradually throughout this year,
Chief Financial Officer Luiz Carlos Angelotti said in the call,
adding that a reduction in provisions will be closely linked to
the behavior of delinquencies.
Even after recurring profit came in at the highest level
since at least the first quarter of 2009, investors will likely
question the decline in net financial margin - the interest
Bradesco earns from loans excluding funding costs - and tepid
expectations for increases in fee and insurance income.
Return on equity, a gauge of industry profitability referred
to as ROE, slid to a four-year low of 19.2 percent in the fourth
quarter from 19.9 percent in the third quarter. That was above
the 18 percent forecast in the poll but still the lowest in
almost four years.
Angelotti said ROE may end between 18 percent and 20 percent
Analysts predict Bradesco's data could reinforce the view
that profitability in the sector will keep declining as
record-low interest rates hamper revenue and force lenders to
roll over maturing loans at a discount. In their view, ROE will
likely keep sinking throughout this year for Bradesco and its
The net financial margin fell for a third straight quarter
to 7.3 percent due to a decline in market interest rates coupled
with a change in the loan book mix. Central bank policymakers
trimmed the benchmark overnight Selic rate to a record-low 7.25
percent in the fourth quarter.
About 40 percent of Bradesco's loan book will mature by June
and could be re-priced at a lower interest margin, Angelotti
said. He expects net interest margin to fall "on a gradual
manner" toward 7 percent by year-end.
Bradesco expects net interest income, or revenue stemming
from loan-related transactions, to expand between 7 percent and
11 percent this year, compared with growth of 8.3 percent in
2012. It forecast fee income growth between 9 percent and 13
percent, following a rise of 14.4 percent last year.
Operational expenses would rise between 4 percent and 8
percent this year, a sign that Bradesco might put additional
emphasis on operational efficiency, Trabuco added.