January 30, 2019 / 10:07 AM / in 23 days

UPDATE 3-Santander Brasil shares sink as bank reports higher provisions

(Adds CEO, CFO comments)

By Carolina Mandl

SAO PAULO, Jan 30 (Reuters) - Banco Santander Brasil SA’s shares slumped nearly 5.7 percent in early afternoon trading on Wednesday after the bank reported results that spurred concerns about the credit-worthiness of its clients.

Santander Brasil’s loan loss provisions jumped 14 percent in the fourth quarter, also squeezing the bank’s net interest income - the difference between what a bank pays to borrow money and what it charges customers for loans.

Its 90-day delinquency rate was 3.1 percent in the quarter, 0.2 percentage point higher than in the third quarter.

Refinancing volumes also rose 5.9 percent in the quarter, outpacing total loan book growth.

“The rise in loan-loss provisions is temporary,” Chief Executive Sergio Rial told journalists. “It does not mean a deterioration in asset quality.”

Santander Brasil has expanded its loan book in part by extending credit to borrowers shunned by other mainstream banks, especially in car loans.

Analysts at Itaú BBA wrote in a note to clients that the bank’s results were slightly negative, as the cost of risk and delinquency rate deteriorated.

“The lower effective tax rate was the main earnings expansion driver,” they said.

Santander Brasil’s tax rate fell to 25 percent, from 37 percent in the third quarter.

Still, Santander Brasil beat fourth-quarter profit estimates. Recurring net income at the Brazilian unit of Spain’s Banco Santander SA rose 23.8 percent to 3.405 billion reais ($915 million), beating the 3.197 billion reais consensus analyst forecast, according to Refinitiv data.

The bank’s loan book reached 386.7 billion reais, up 1.6 percent in the quarter, mainly driven by personal lending.

Santander Brasil increased its profitability for another quarter. Its return on equity reached 21.1 percent, up 1.6 percentage points from the third quarter.

Despite Wednesday’s drop in share price, Santander investors have been better off over the past year than shareholders of its Brazilian rivals. Santander’s units, which combine the bank’s common and preferred shares, are up 36 percent for the period. That compared with an 11 percent gain in Banco Bradesco SA and a 17 percent rise in Itau Unibanco Holding SA shares.

Earlier on Wednesday, Spain’s Banco Santander reported a 4 percent rise in fourth-quarter profit, buoyed by strong performance in Brazil and higher net income.

Santander Brasil is the first big, publicly listed Brazilian bank to report its fourth-quarter earnings. It will be followed by the second-largest private lender, Banco Bradesco SA on Thursday.

$1 = 3.7201 reais Reporting by Carolina Mandl; additional reporting by Paula Laier; editing by Alexander Smith and Bernadette Baum

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