April 25, 2019 / 9:57 AM / 7 months ago

UPDATE 2-Brazil's Bradesco Q1 meets forecasts, sees asset quality gains

(Adds analyst, CEO comments)

By Carolina Mandl

SAO PAULO, April 25 (Reuters) - Brazil’s No. 2 private-sector lender Banco Bradesco SA posted a 22 percent gain in quarterly recurring net income, meeting forecasts, as default ratios hit all-time lows.

Bradesco managed to grow its loan book at a fast pace while improving asset quality. It was the latest sign of strength for Brazil’s top banks even as the country’s economy struggles to recover.

CEO Octavio de Lazari said he also sees its delinquency ratio - a measure of loans in arrears for more than 90 days - falling further this year after they declined in the quarter, adding that the bank expects full-year profitability to rise.

“There is still room for improvement in the delinquency ratio, although it is smaller now,” Lazari said. The default ratio over 90 days came in at 3.3 percent, down 0.2 percentage point from the fourth quarter of 2018.

Still, preferred shares in Bradesco were down 2.3 percent in mid-morning trading, as investors were taking profits after recent gains, traders said.

Analysts highlighted in notes that the main negatives of Bradesco’s results were fee income and operating expenses, as both came in outside the bank’s guidance range.

Bradesco’s first quarter profit rose to 6.238 billion reais ($1.56 billion), roughly in line with a Refinitiv analyst consensus.

Declining losses on bad loans also boosted Bradesco’s results. Loan-loss provision fell by 8.4 percent from the same quarter a year earlier.

Itau BBA’s analysts said in a note to clients they were surprised by improvements in Bradesco’s asset quality in the first quarter.

LOAN BOOK GROWTH

The bank’s loan book reached 548.3 billion reais, up 3.1 percent in the quarter, as lending to both individuals and companies increased. Bradesco expects its loan book to grow between 9 percent and 13 percent in 2019.

Lazari said the bank’s growth in lending outpaced what it was expected for Brazil’s still sluggish economic recovery, helped by new tools that allow Bradesco to infer clients’ income without requesting a paycheck.

Reuters reported in December that Bradesco expected to boost many clients’ credit limits in 2019 thanks to the new tools that are able to measure income from sources like freelance jobs and rental properties.

Bradesco’s return on equity, a barometer of profitability, rose to 20.5 percent, in line with analysts’ expectations. It was up 0.8 percentage points from the previous quarter.

$1 = 3.9911 reais Reporting by Carolina Mandl; Additional reporting by Paula Laier; Editing by Mark Potter, Jane Merriman and David Gregorio

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