Banco do Brasil Raises Profit 43%, Regains Top Rank
Aug. 13 (Bloomberg) -- Banco do Brasil SA regained its rankas Latin America’s largest bank in the second quarter andboosted profit 43 percent as acquisitions and lower interestrates enabled the lender to expand credit faster than rivals.
Net income rose to 2.35 billion reais ($1.28 billion), or91 centavos a share, from 1.64 billion reais, or 65 centavos, ayear earlier, the Brasilia-based bank said in a statement today.Total assets surged 44 percent to 598.8 billion reais, puttingthe lender ahead of Brazil’s largest non-government bank ItauUnibanco Holding SA.
Finance Minister Guido Mantega today told reporters inBrasilia that state-controlled banks helped to pull the nationout of its first recession since 2003. “Private banks shouldfollow Banco do Brasil’s example,” he said. President LuizInacio Lula da Silva in April replaced Banco do Brasil’spresident, Antonio Francisco de Lima Neto, with Aldemir Bendineas the government sought to force lower lending rates and reviveeconomic growth.
“Banco do Brasil is taking the lead in credit expansionwhile privately held lenders are more selective.” said LuisMiguel Santacreu, an analyst at Austin Rating in Sao Paulo.“Banco do Brasil responded to pressure from the government tostimulate competition via government-controlled lenders.”
Banco do Brasil’s total lending expanded 33 percent to252.5 billion reais. Itau Unibanco said on Aug. 11 its totallending grew 15 percent in the quarter, and Banco Bradesco SA,the country’s second-largest non-government bank, posted an 18percent increase in credit.
‘Business Opportunity’
“We saw a great business opportunity when others cutback” in lending, Bendine told reporters today in Sao Paulo.“Our interest rate policy is within our rigorous standards andis sustainable.”
The bank’s shares rose 53 centavos, or 2.1 percent, to25.37 reais at 2:30 p.m. New York time in Sao Paulo trading.
Adjusted net income rose to 1.73 billion reais from 1.46billion reais, beating the 1.48 billion reais average estimateof three analysts surveyed by Bloomberg News.
Less dependence on agricultural loans because of a surge inpersonal lending along with “stronger revenue generation”contributed to the results, said Mario Pierry, an analyst withDeutsche Bank AG in New York, citing insurance revenue that“surpassed our forecasts.”
Lower Interest Rates
Banco do Brasil reiterated its forecast that credit willexpand 13 percent to 17 percent this year, Bendine toldreporters. Loan growth will accelerate in 2010 as the economygrows at a faster pace, he said.
Banco do Brasil’s net interest margin, the differencebetween what the bank paid to raise funds and what it earnedfrom loans, increased to 7.3 percent from 7.1 percent a yearearlier, as the lender boosted credit to consumers, the lendersaid. Loans to individuals rose 69 percent, and corporatelending expanded 32 percent, the federally controlled bank said.
Return on equity, a measure of how effectively the companyreinvests earnings, increased to 33.2 percent from 27.9 percenta year earlier. At Itau, return on equity declined to 22.3percent from 26.5 percent.
At the end of July, Banco do Brasil’s average interest ratefor consumer credit was 34.2 percent, compared with 66.1 percentat Itau and 80.8 percent at Bradesco, according to the centralbank.
Monetary policy makers slashed benchmark lending rate infive meetings to a record low of 8.75 percent, from 13.75percent in December, in an attempt to spur growth in LatinAmerica’s largest economy.
High Rates ‘Over’
“The time of high interest rates in Brazil are over,”said Ricardo Flores, a vice president at the bank. “Banco doBrasil’s strategy is to expand credit because higher volumeswill compensate lower rates.”
Banco do Brasil had 455 million reais of non-recurringgains, after the 1.42 billion reais sale of a stake in theBrazilian credit-card payments processor Cia. Brasileira deMeios de Pagamento, or VisaNet. Banco do Brasil used part of itsone-time gains to increase the amount set aside for defaults.The bank had 17.8 billion reais for bad-loan provisions at theend of June, 30 percent higher than at the end of December.
Banco do Brasil’s non-performing loan rate, as measured bylate payments of more than 90 days, rose to 3.3 percent in thesecond quarter from 2.5 percent a year earlier. The rate, whichis at its highest level since at least September 2007, willdecline by year end, Bendine said.
Rising Defaults
At Itau, defaults increased to 5.4 percent at the end ofJune from 4 percent a year earlier. At Bradesco, defaults in thesecond quarter rose to 4.6 percent from 3.4 percent a yearearlier.
It’s the first time the bank has included in its earningsresults from Sao Paulo-based Banco Nossa Caixa SA, which Bancodo Brasil agreed to buy last year.
Banco do Brasil bought Nossa Caixa as part of Lula’s pushto have the bank regain its position as the country’s largestlender after losing first place to Itau Unibanco. Theacquisition made Banco do Brasil the largest lender in Sao Paulostate by number of branches, Bendine said in July. The lenderwill also seek to be No. 1 in the state in assets and creditportfolio, Bendine said without specifying a date.
The lender also agreed to acquire a stake in BancoVotorantim SA. Banco do Brasil expects the central bank approvalon the deal to be release this quarter, Bendine said.
Banco do Brasil had lost its No. 1 position in terms ofassets when Unibanco agreed to be bought by Itau last November.Itau Unibanco posted a 15 percent increase in total assets inthe second quarter to 596.4 billion reais.
To contact the reporters on this story:Telma Marotto in Sao Paulo at tmarotto1@bloomberg.net;Flavia Bohone in Sao Paulo at fbohone@bloomberg.net
Last Updated: August 13, 2009 14:33 EDTSource: Bloomberg
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