(Recasts to add comments, share performance)
By Guillermo Parra-Bernal
SAO PAULO, April 27 The pace and extent of
Brazil's economic recovery will dictate future trends for
defaults and loan-loss provisions at Banco Bradesco SA, which
saw corporate defaults climbing during the first quarter, Chief
Financial Officer Alexandre Glüher said on Thursday.
Defaults may decline little this year but sharply drop in
2018, he said in a conference call to discuss last quarter's
results. Rising demand for consumer loans may allow the
country's No. 3 listed bank to disburse more in some segments
while keeping an eye on still-problematic corporate credit, he
"If the recovery materializes, we should see large corporate
borrowers get better refinancing terms and defaults declining,"
Glüher noted, adding that scaling down provisions is "a
function" of how quickly Brazil emerges from its steepest
recession on record.
His remarks suggest that lingering loan quality woes for
domestic banks are taking the backseat after a four-year credit
market downturn. While it may take longer for activity and job
market indicators to revive, analysts expect business confidence
gauges and an ongoing interest-rate cutting cycle to accelerate
Earlier on Thursday, Bradesco reported first-quarter profit
results that beat estimates after a bigger-than-expected cut in
provisions helped offset impairments in the value of financial
securities and an unexpected fall in fee income.
Recurring net income, or profit excluding one-off items,
totaled 4.648 billion reais ($1.47 billion) last quarter, up 6
percent from the prior three months. The consensus estimate was
4.391 billion reais.
Preferred shares, Bradesco's most widely traded
class of stock, jumped the most in 10 days as investors backed
Chief Executive Officer Luiz Carlos Trabuco's strategy of
cutting provisions even if defaults kept rising.
The stock rose as much as 3.5 percent before trimming gains
to trade 2.7 percent higher in early afternoon trading.
Trabuco's credit risk controls allowed Bradesco to cut
provisions by 12 percent, more than twice what analysts
forecast. A bad loan growth metric, known as non-performing loan
creation, remained stable last quarter.
Still, defaults rose for the ninth straight quarter, as
Bradesco wrestled with eroding corporate loan book quality.
The so-called default ratio hit 5.6 percent last quarter,
above a 5.3 percent estimate. It might have stood unchanged at
5.5 percent had Bradesco not been forced to reclassify an
unspecified corporate loan that turned riskier.
Nonetheless, Bradesco's coverage ratio, or how much capital
it has to cover bad loans, rose to 215 percent last quarter.
"Results show asset quality improved and the coverage ratio
and non-performing loan buffer remained elevated, providing
earnings protection," said Philip Finch, a strategist with UBS
Fee income declined for the first time in a year while
average interest rates charged on borrowers slipped for a second
($1 = 3.1722 reais)
(Editing by Richard Lough and W Simon)