Itau net slips, but loan portfolio still surging

By Todd Benson

SAO PAULO (Reuters) - Brazilian financial group Itau said second-quarter net profit slipped 3.5 percent from a year earlier, when it booked a one-time gain from the sale of its stake in local credit bureau Serasa.

The bank also forecast a rosy outlook for the Brazilian economy over the next two years, predicting that the recent rise in domestic interest rates is unlikely to significantly curb demand for consumer credit.

Banco Itau Holding Financeira ITU.NITAU4.SA, as Brazil's second-largest private-sector bank is formally known, said net income fell to 2.041 billion reais ($1.3 billion) from 2.115 billion reais a year earlier and 2.043 billion reais in the first quarter of this year.

The bank was expected to report net income of 2.051 billion reais, according to the average forecast of three analysts polled by Reuters.

Itau took some one-time charges in the quarter that weighed on its bottom line. Excluding those charges, profit would have totaled 2.079 billion reais.

Itau shares rallied after the earnings report was released, rebounding from a slump in recent days. Its shares were up 3.77 percent at 33.00 reais in afternoon trading, outpacing a 2 percent gain by the Bovespa index .BVSP.

Like other banks in Brazil, Itau is benefiting from growing demand for consumer credit as the country's economy expands at a healthy clip. The increase in lending, coupled with low default rates, has helped Brazilian banks consistently chalk up hefty profits at a time when banks in the United States and Europe are bleeding losses because of the credit crisis there.

Itau's larger domestic rival, Banco Bradesco (BBDC4.SA) (BBD.N), has also been racking up big profits thanks to the credit boom. On Monday, Bradesco reported second-quarter net earnings of 2.002 billion reais, in line with expectations.

Some analysts caution that lending may start to slow now that Brazil's central bank has begun raising interest rates to contain inflation. Itau, however, expects demand for credit to remain strong, especially from companies that need financing for expansion.

"The outlook for loans is still very positive," Silvio de Carvalho, an executive director at the bank, said on a conference call. "The debt levels of individuals and companies in Brazil are still low."

CREDIT STILL BOOMING

Itau's loan portfolio jumped to 148.07 billion reais in the second quarter, up 41.3 percent from a year earlier and up 7.5 percent from the previous quarter. Loans to businesses underpinned that growth, expanding 47.8 percent from a year ago and 10.7 percent from the first quarter.

Personal loans grew 38.3 percent from a year earlier and 7.5 percent from the previous quarter, helped by robust growth in credit card lending and Itau's vehicle leasing business.

With car and truck sales surging to record highs month after month, Itau increased auto financing by 61.7 percent from a year earlier and 10.1 percent from the first quarter.

Another area where Itau is boosting its presence is mortgage financing, an up-and-coming market in Brazil for private-sector banks as the country's bulging middle class looks to buy homes. It increased mortgage lending by 10.6 percent on a quarter-on-quarter basis.