Technical Review on Itaú Unibanco and Banco Bradesco: Projected Better Q4
Results for Brazilian Banks
LONDON, January 24, 2013
LONDON, January 24, 2013 /PRNewswire/ --
After enjoying years of robust growth, Brazilian banking industry went through
a tough period last year. During the first three quarters of 2012, profit
margins at Brazilian banks fell to the lowest levels in a decade. However,
Brazilian banks saw a turnaround in the fourth quarter. All eyes are now set
on banks' earnings, which will be kicked off by Banco Bradesco SA (NYSE: BBD)
on January 28 ^th , 2012. Itau Unibanco Holding S.A. (NYSE: ITUB), one of the
biggest Brazilian banks, will report its quarterly results on February 5 ^th .
StockCall analysts have compiled a detailed technical analysis on Banco
Bradesco and Itau Unibanco Holding, and these free reports can be downloaded
Decline in Default Rates to Benefit Brazilian Banks
While commodities export has been one of the drivers of the Brazilian economy,
in recent years, the country has also seen a sharp rise in consumer spending.
Consumer spending was driven by credit growth. The growth model worked well as
the Brazilian economy expanded, however, as growth stalled last year,
Brazilian banks saw a sharp rise in consumer-loan default rate.
In the third quarter of 2012, the Brazilian economy grew 0.6%. The trend,
however, reversed in the fourth quarter of 2012. Recent data indicates that
economic activity picked up in the fourth quarter of 2012. This augurs well
for Brazilian banks such as Banco Bradesco and Itau Unibanco. See our
technical and charting report on Banco Bradesco by signing up today at
Another encouraging development for Brazilian banks has been a decline in
default rate. According to data released by Brazil's central bank last month,
the country's consumer-loan default rate fell to 7.8% in November from 7.9% in
October, the first drop in default rate in five months.
Falling Interest Rates
As the Brazilian economy saw a sharp slowdown in 2012, the Brazilian central
bank implemented monetary easing measures to boost economic growth. The
Brazilian central bank has cut the benchmark Selic rate to a record low 7.25%.
More importantly, the central bank has pledged to keep interest rates low for
a prolonged period.
While lower interest rates have helped in bringing down default rate, they are
also hurting banks' net interest margins and profitability. This is because a
decline in interest rates means tighter spreads for banks. It will be
interesting to see how much of this has had an impact on bottom-line when
Banco Bradesco and Itau Unibanco Holding S.A. [ Free Technical Research Report
on ITUB ] ^[ ^1 ^] report their quarterly results in the next few days.
In order to boost lending, the Brazilian government is also putting pressure
on banks to cut fees and lower rates. While the move will help in boosting
economic growth, it will hurt Brazilian banks' profit margins.
Bradesco and Itau Unibanco Still Look Good
A decline in default rate is a good sign for Banco Bradesco and Itau Unibanco.
However, the two banks will feel the pinch from record low-interest rates.
Still Bradesco and Itau Unibanco look attractive, especially if the Brazilian
economy continues to improve this year.
Both banks are reasonably valued at current level. While Itau Unibanco trades
on a P/E ratio of 12.23, Banco Bradesco trades on a P/E ratio of 13.09.
Overall, the major concern for the Brazilian banking industry remains record
low interest rates. However, a pickup in economic activity and a decline in
default rates are an encouraging sign.
1.Itaú Unibanco Holding S.A. Technical Analysis [
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