(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)(Adds related columns.)
By Raul Gallegos
NEW YORK, July 24 (Reuters Breakingviews) - Brazil’s bank giants are putting prudence before politics. Itau (ITUB4.SA) and Bradesco (BBDC4.SA) are slowing consumer lending as loan defaults climb. The move runs counter to the wishes of President Dilma Rousseff, who is pressuring the nation’s banks to lend more at rock-bottom rates. But with consumers and the broader economy under pressure, a dose of financial conservatism is welcome.
Brazil’s economy probably won’t grow by more than 1.9 percent this year, according to Brazilian economists surveyed by the central bank, even after the monetary authority cut rates to a record low 8 percent. Meanwhile, problem loans hit 6 percent in May, the highest since the central bank began keeping score in June 2000, and are likely to get worse before getting better.
Thankfully, Brazil’s leading private lenders have a more realistic view of the Brazilian economy’s prospects than Rousseff and are pushing back. The largest, Itau, is cutting its credit growth projections to 10 percent for the year down from a previous 14 to 17 percent range following a disappointing second quarter. By contrast, the central bank’s adjusted loan growth estimate for 2012 remains at 15 percent. Bradesco now reckons its lending portfolio will grow by as little as 14 percent.
In particular, Brazil’s lending giants plan to put the brakes on auto loans, a segment that Rousseff and the central bank have tried to boost with tax cuts and lower bank deposit requirements. Itau aims to slow auto loan disbursements to $24.5 billion, a 3.8 percent drop from previous estimates. Bradesco wants to shift away from auto loans into payroll loans and mortgages.
The major lenders do, at least, think that loans are coming under control. Itau now expects no more than $3.2 billion of provisions in the third quarter, 8 percent below its previous estimates. Of course, a drop in lending combined with lower rates and a slowing economy means bank margins will feel the squeeze. But that’s preferable to throwing good money after bad to keep Rousseff happy.
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- On July 24 Itau Unibanco, Brazil’s largest private-sector bank, reported an 8.3 percent fall in second-quarter profit compared with the same period a year ago. A rise in bad loan provisions and credit-loss writedowns offset gains in interest, trading-related and fee income.
- The bank cut its outlook for provisions in the third quarter to a range of 6 billion reais to 6.5 billion reais ($2.9 billion to $3.18 billion) down from a previous estimate of 6.5 billion reais to 7.1 billion reais. The 5.99 billion reais in second-quarter gross provisions came in at the low end of forecasts. The bank’s new vehicle financing and leasing transactions decreased 36.5 percent from a year ago.
- On July 23 Banco Bradesco, the country’s second-largest private-sector bank, signaled that it would cut loan growth to a range of 14 to 18 percent this year, below its prior 18 to 22 percent range. Bradesco’s second-quarter net income rose 1.7 percent to 2.83 billion reais year-on-year, below the 2.92 billion reais estimate in a Reuters analyst poll.
Brazil’s Itau gains on pledge for loan discipline [ID:nL2E8IO1CO]
Bradesco cuts loan growth estimates after profit miss [ID:nL2E8IN0F0]
Rousseff 'very worried' about Brazil economy [ID:nL2E8INE7D]
Real slippery [ID:nL2E8IG2OJ]
Reality check [ID:nL2E8IC3HR]
Belly up [ID:nL1E8H48GT]
- For previous columns by the author, Reuters customers can click on [GALLEGOS/]
(Editing by Antony Currie and Martin Langfield)
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