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UPDATE 1-Brazil's Caixa says risk management, cost controls to lift profit
March 28, 2017 / 3:21 PM / 8 months ago

UPDATE 1-Brazil's Caixa says risk management, cost controls to lift profit

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By Aluísio Alves and Guillermo Parra-Bernal

SAO PAULO, March 28 (Reuters) - Caixa Econômica Federal expects higher profit and other key improvements this year, as efforts by Brazil’s largest mortgage lender to stem loan delinquencies and curb costs begin to pay off, Chief Executive Officer Gilberto Occhi said on Tuesday.

At an event to discuss the state-controlled lender’s fourth-quarter results, Occhi said Caixa’s steps to rein in expenses and bolster efficiency have eliminated the need for a capital injection from the National Treasury. It also has ruled out listing any subsidiaries or selling assets this year.

Occhi and other Caixa executives said a voluntary worker retirement plan slated for this year could lead to about 975 million reais ($311 million) in cost savings. Occhi expects about 5,000 of Caixa’s almost 95,000 employees to join the program.

“For years we focused on growth, now it’s time to focus on operational efficiency,” Occhi said.

His remarks came after Brasilia-based Caixa posted a sharp jump in its quarterly recurring profit, reflecting declining loan-loss provisions as delinquencies dropped. Recurring net income, a gauge of profit excluding one-off items, was 2.449 billion reais, up three-fold from the prior three months and the highest level in at least seven years.

Since taking over the helm of the lender last year, Occhi has focused on fine-tuning Caixa’s credit risk assessment models to weather surging defaults and bad loans, which are hovering around the highest levels in four years.

Caixa had posted a net recurring loss of 322 million reais in the last quarter of 2015.

DEFAULTS

Like most of its rivals, Caixa has begun to feel the impact of declining domestic borrowing costs, which can weigh down interest income but offer relief to risky or even delinquent borrowers. Local interest rates remained at a decade-high between 2015 and 2016, compounding the effect of Brazil’s harshest recession ever.

Loans in arrears for 90 days or more, a benchmark for delinquencies, fell to the equivalent of 2.9 percent of Caixa’s outstanding loans in December, compared with 3.5 percent in the third quarter and 3.6 percent in the fourth quarter of 2015.

Until last year, the lender’s delinquencies fluctuated at levels well below the average of Brazil’s banking industry because of the collateralized nature of its loan book. At the end of last year, mortgages accounted for about 60 percent of Caixa’s 709.289 billion reais in loans.

Fee income, or revenue from financial services, rose 5.5 percent last quarter, while provisions receded 3 percent in the wake of a 0.6 percentage points in the 90-day default ratio. Provisions, or capital that banks set aside to cover bad loans, came in at 4.937 billion reais last quarter - the lowest level in a year.

Interest income fell 1 percent from the third quarter. Non-interest expenses, which are comprised of payroll and administrative expenses, rose to 8.803 billion reais in the quarter.

$1 = 3.1323 reais Additional reporting by Bruno Federowski in São Paulo; Editing by Chizu Nomiyama and Paul Simao

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