August 9, 2018 / 11:24 AM / 6 days ago

UPDATE 2-Banco do Brasil says loans likely to gain steam by year-end

(Adds CEO comments)

By Carolina Mandl

SAO PAULO, Aug 9 (Reuters) - Banco do Brasil SA shares rose in Thursday morning trading after the state-controlled bank beat analysts’ profit estimates and predicted that loans will pick up steam in coming months.

Chief Executive Paulo Caffarelli said in a news conference that corporate loans will help the bank meet its target for 1 percent to 4 percent domestic loan book growth in 2018. It shrank 1 percent in the first six months of the year due to a contraction in corporate loans.

Banco do Brasil’s total loan book resumed growth in the quarter, with a 1.5 percent increase. Still, the country´s biggest lender is lagging behind its private peers.

Goldman Sachs analyst Carlos Macedo said in a note to clients that growth remains weak. “However, a deeper analysis shows that growth has already inflected meaningfully in almost every product category,” he wrote.

In spite of the pickup in loans, CFO Bernardo Rothe said net interest income growth should accelerate only in 2019.

Banco do Brasil’s recurring net income, which excludes one-time items, rose 19.7 percent from a year earlier to 3.240 billion reais ($859 million), helped by lower loan loss provisions and higher fees. The result topped a consensus estimate by 3.8 percent, as compiled by Reuters.

The bank predicted an upward trend in asset quality and reduced its target for net loan loss provisions in 2018 to a range of 14 billion to 16 billion reais, compared with the previous 16 billion to 19 billion reais.

The bank’s 90-day default ratio decreased 0.3 percentage points to 3.34 percent and Caffarelli predicted it should go down further due to write-offs in the corporate segment.

Profitability as measured by return on equity rose to 13.8 percent, up 0.6 percentage points. Chief Executive Officer Paulo Caffarelli reinforced the goal to close the profitability gap between Banco do Brasil and the country’s largest banks.

Shares in Banco do Brasil were up 1.78 percent in late morning trading at 33.20 reais, outperforming the Bovespa index.

$1 = 3.77 reais Reporting by Carolina Mandl Editing by Jason Neely, Jeffrey Benkoe and Frances Kerry

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