November 9, 2017 / 1:44 PM / a year ago

UPDATE 1-Banco do Brasil set to reverse loan book slump, meet 2017 estimates

(Adds CEO comments)

By Aluisio Alves and Bruno Federowski

SAO PAULO, Nov 9 (Reuters) - State-controlled lender Banco do Brasil SA on Thursday vowed to revive loan book growth and raise profitability in the coming quarters after missing third-quarter earnings estimates.

Chief Executive Officer Paulo Caffarelli, at a news briefing, forecast loan book growth of 6 percent in 2018. That would break with a year-long downward trend as Brazil emerges from its deepest recession in a century, which had hurt demand for credit.

Banco do Brasil’s so-called organic loan book contracted by 6.9 percent in the third quarter from a year earlier, far from a target of a 1 percent to 4 percent year-end decline.

But Caffarelli said the bank would meet its estimates for 2017, which would require the organic loan book to contract by no more than 0.3 percent in the fourth quarter from the third.

Weak demand for loans among companies weighed on third-quarter interest income, driving a smaller-than-expected increase in net profit.

Net income grew 2.2 percent from the prior three months to 2.708 billion reais ($832 million) when adjusted for non-recurring items, according to a securities filing, below the 2.838 billion real consensus estimate compiled by Reuters.

Still, the bank cut loan-loss provisions to the lowest levels in two years on the third quarter as defaults fell for the first time since the third quarter of 2016.

Common shares fell 1 percent to 22.71 reais in Thursday trading in São Paulo, paring back this year’s gains to 19 percent.

Caffarelli said Banco do Brasil will continue selling noncore assets in 2018 but declined to elaborate on the sale of its stake in Neoenergia SA, Brazil’s No. 1 power utility in terms of clients served.

Neonergia on Wednesday requested authorization from regulators to list shares on the São Paulo Stock Exchange in an initial public offering. According to the filing, Banco do Brasil will sell the entirety of its 9.35 percent stake in the IPO.

Reuters reported in July that Neoenergia may seek a valuation of up to $11 billion in dual listings in São Paulo and New York.

$1 = 3.2545 reais Reporting by Aluisio Alves and Bruno Federowski; Writing by Tatiana Bautzer; Editing by Susan Fenton and Bernadette Baum

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