By Guillermo Parra-Bernal and Natalia Gómez
SAO PAULO Oct 21 Banco Bradesco SA, Brazil's
No. 2 private-sector lender, on Monday trimmed its projections
for interest income growth this year for a second straight
quarter to account for sagging demand for new credit in Latin
The Osasco, Brazil-based bank said in a statement that it
expected net interest income, or revenue exclusively from
lending activities, to rise this year by 1 percent to 3 percent.
In the second quarter, it had cut its forecast for the gauge to
a range of 4 percent to 8 percent, citing lackluster growth in
its loan book.
The latest estimate came even as the bank's third-quarter
profit beat expectations, partly because of a healthier top
line. Earnings before one-time items, or recurring profit,
totaled 3.082 billion reais ($1.42 billion), above the 3.066
billion reais estimate from a Thomson Reuters poll of seven
Lower revenue growth highlights the challenge facing Chief
Executive Officer Luiz Carlos Trabuco, who for the past year has
reined in lending to riskier segments like auto loans and
focused on mortgages and paycheck-deductible credit to protect
profits. Since late 2011, Bradesco and private-sector rivals
have struggled with intense competition from state-run banks
that led to lower borrowing costs across the banking system.
Chief Financial Officer Luiz Carlos Angelotti said the
decision had nothing to do with the impact of losses in the
value of Bradesco's government bond holdings since April. In the
quarter, the bank partially reversed a drop in shareholders'
equity incurred during the second quarter caused by a spike in
yields on local debt notes.
"We had to address the issue of weak credit market trends,
since we don't expect our loan book this year to grow beyond the
bottom of our guidance" of 11 percent to 15 percent, Angelotti
said in a conference call.
Bradesco led declines in Brazil's banking shares on concern
the bank's slight earnings beat and guidance cut may presage
weak results for Itaú Unibanco Holding SA and Banco
Santander Brasil SA in coming days. Preferred shares
of Bradesco shed as much as 1.9 percent on Monday.
Santander reports earnings on Thursday, while Itaú publishes
its own on Oct. 29.
"Results were slightly disappointing," Philip Finch, a
London-based strategist with UBS Securities, said in a note to
Some analysts bet that recent interest-rate hikes by the
central bank will help bolster revenue. Policymakers have raised
the benchmark Selic overnight lending rate five times since
April from a record low, slightly widening spreads, or the
difference between the interest rate charged on a loan and the
lender's fund-raising costs.
In the 12 months through Sept. 30, Bradesco's net interest
income rose 0.2 percent to 10.62 billion reais. But the bank's
annualized net interest margin, a measure of the average
interest rate charged on all loans, slipped to 7 percent in the
third quarter from 7.2 percent in the prior three months.
"Rate hikes still seem not to be providing benefits, as
margins continued to decline driven by the change in the loan
mix," said Carlos Macedo, an analyst with Goldman Sachs Group in
At Bradesco, revenue rose slightly on a quarterly basis
after trading-related income rose six-fold. The surge in bond
yields drove both this income down and shareholders' equity
To compensate for flagging credit demand, CEO Trabuco
focused on expense controls and efforts to boost revenue from
investment-banking, insurance and financial services. But
despite those efforts, return on equity, a measure of how well
banks allocate shareholders' money, fell to 18.4 percent on a
recurring basis from 18.8 percent in the prior quarter.
While return on equity came in slightly above the poll's
forecast of 18.3 percent, it hit its lowest level since at least
the end of 2008.
Management cut provisions on bad loans for the fifth
straight quarter as loan delinquencies fell, especially in
consumer lending. The reduction in provisions, which directly
boosts earnings by freeing up capital, was 7 percent on a
quarter-on-quarter basis and 13 percent from a year earlier.
Loan defaults for 90 days or more, the industry's benchmark
for delinquencies, slipped in the third quarter to 3.6 percent
of outstanding credit from 3.7 percent in the second quarter.
Analysts had expected the ratio to remain stable.
Bradesco's loan book reached 412.56 billion reais at the end
of June, up 2.5 percent on a quarterly basis. On an annual
basis, lending rose 11 percent, at the bottom of this year's
forecast for credit growth between 11 percent and 15 percent.