(Recasts to add details, comments, share performance throughout)
By Guillermo Parra-Bernal
SAO PAULO, Nov 3 (Reuters) - Itaú Unibanco Holding SA took advantage of stronger-than-expected third-quarter profit to boost loan-loss provisions, as Brazil’s No. 1 bank by market value wrestles with the impact of the country’s deepest recession in a quarter century.
Last quarter, Itaú used gains in the value of deferred tax assets to boost certain reserves while setting aside more money to cover loan losses. In a securities filing on Tuesday, Itaú said the decision had to do with “a more challenging economic outlook” in Brazil.
Chief Executive Officer Roberto Setubal boosted recurring provisions by 6.2 percent, the fastest pace in a year, as consumer delinquencies soared. Those provisions rose to 4.653 billion reais, while non-recurring excess and generic reserves were increased by 2.793 billion reais.
Shares gained 2.5 percent, the most in three weeks, as profit beat estimates as trading-related income surged, even as provisions climbed, taxes jumped, expenses grew faster than expected and loan repricing showed signs of stagnating. Still, the numbers failed to allay fears over the eroding quality of Itaú’s loan book and a declining capital position.
Recurring net income, or profit before one-time items, at São Paulo-based Itaú was 6.117 billion reais ($1.57 billion) last quarter, above a Reuters poll estimate of 5.761 billion reais. Recurring provisions came in at 4.653 billion reais, above the poll’s estimate of 4.581 billion reais.
Still, Itaú’s Tier 1 ratio, a gauge of financial strength that compares the core equity and the risk-weighted assets of a bank, slipped to 12.1 percent last quarter from 13.2 percent the prior quarter.
Trends in provisions remain the biggest issue for Brazilian banks because of Brazil’s recession, which could turn out to be the longest since the 1930s. The downturn, coupled with rising unemployment, will keep stoking defaults for a few more months, investor relations director Marcelo Kopel said in a conference call.
“Asset quality continued to weaken, but Itaú appears to be well covered after recent increases in provisions,” said Carlos Macedo, an analyst with Goldman Sachs. “That said, the cycle should keep weakening results into next year, with little relief in sight.”
The additional provisions pushed Itaú’s coverage ratio, or a gauge of loan-loss reserves, to 214 percent.
Loans in arrears for 90 days or more, a benchmark for delinquencies, was stable at 3.3 percent on a quarterly basis, but rose 0.5 percentage point for consumers and slipped 0.2 point for companies, the filing showed.
$1 = 3.8540 Brazilian reais Editing by Jane Merriman and Meredith Mazzilli