January 30, 2015 / 2:56 PM / 5 years ago

UPDATE 1-Brazil's Bradesco says ready to weather corporate defaults

(Recasts to add details on Petrobras downgrade, comments on defaults, provisions and expenses throughout)

SAO PAULO, Jan 30 (Reuters) - Banco Bradesco SA is prepared to weather an expected wave of corporate defaults and debt restructurings in Brazil, executives said on Friday, expecting strict risk assessment and provision policies to protect the loan book of Brazil’s No. 2 private sector lender.

While more “credit events” could take place this year, they are unlikely to “significantly impact Bradesco’s asset quality or force the bank to raise provision levels,” Chief Financial Officer Luiz Carlos Angelotti said on a conference call to discuss fourth-quarter earnings.

Worries about the impact of Moody’s Investors Service’s decision to cut the debt rating of state-controlled oil producer Petroleo Brasileiro SA are hurting confidence in Brazilian banks. Petrobras, as the oil giant is known, is Brazil’s biggest corporate borrower and relies on all major lenders to obtain funding.

The Petrobras downgrade was a main theme on the call, overshadowing Bradesco’s otherwise strong quarterly results. The lender reported record recurring net income on Thursday that beat analysts’ estimates.

Bradesco shares shed 2.2 percent to 34 reais on Friday. An index of financial companies trading on the São Paulo Stock Exchange dropped 2 percent to a two-week low.

Analysts are concerned that Petrobras’ access to capital markets will be limited due to a massive corruption scandal, and it will be forced to burn through cash and delay payments to suppliers. That in turn could unleash a wave of defaults. Banks in Brazil say that so far they are well equipped to navigate such a scenario.


CFO Angelotti said Bradesco has a “conservative” risk assessment policy that makes the quality of its loan book more solid. Asked whether the bank treats state-owned companies as sovereign or corporate borrowers when assessing creditworthiness, Angelotti answered corporate.

In response to questions about the Petrobras downgrade, Angelotti said Bradesco “carefully analyzes credit events on a case-by-case basis.” He expects Bradesco to keep its coverage ratio, which gauges a bank’s ability to absorb potential losses from non-performing loans, stable through 2015.

Moody’s lowered all outstanding ratings of Petrobras, a sign that further downgrades may come. Petrobras’ unsecured debt rating was lowered to Baa3, the lowest investment-grate ranking. (Reporting by Guillermo Parra-Bernal; Editing by Chizu Nomiyama and Jeffrey Benkoe)

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