February 22, 2018 / 11:54 AM / 6 months ago

UPDATE 2-Banco do Brasil seeks higher core capital ratio, shares rise

(Recasts with core ratio comments, adds shares, CEO and analyst comments)

SAO PAULO, Feb 22 (Reuters) - Shares in Banco do Brasil rose on Thursday after the state-controlled bank reported a surge in quarterly earnings, and said it would seek a core capital ratio of at least 11 percent in 2022, with a target of 12 percent.

Chief Executive Officer Paulo Caffarelli said at a post-earnings news conference that the new target would not depend on asset sales, indicating higher profitability expectations.

The new guidance meant that “improving profitability and efficiency will remain a top priority”, which gave upside potential to the stock, BTG Pactual analyst Eduardo Rosman said in a note to clients.

The core capital ratio is a cushion formed by equity or equivalents, a sign of a bank’s health that is required by banking regulators.

Earlier on Thursday, Banco do Brasil reported an 82.5 percent jump in recurring net income in the fourth quarter from a year earlier, to 3.188 billion reais ($978 million), topping the 2.804 billion expected by analysts. Recurring net income excludes one-off items.

Shares were up 3.65 percent in early afternoon trading in Sao Paulo at 42.61 reais.

The bank is targeting a recurring net income target of 11.5 billion to 14 billion reais in 2018, versus 11.0 billion in 2017. It said it sees potential for lower loan loss provisions and higher fee income to help in 2018.

Return on equity also came slightly above estimates, at 12.5 in the quarter. Banco do Brasil, Brazil’s second largest lender, expects its loan book to grow by 1 to 4 percent, after a fall of 3.2 percent in 2017.

Caffarelli said the bank plans to expand loans to individuals and small and medium companies. He added that Banco do Brasil also wants to grow its capital markets division, to raise fees obtained with services such as advisory to shares and debt offerings.

In the fourth quarter, asset management and checking account fees helped the bank offset weaker credit growth. Fee income totaled rose 6 percent to 6.7 billion reais.

$1 = 3.2682 reais Reporting by Carolina Mandl; editing by Jason Neely and Rosalba O'Brien

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