Banco Santander Brasil SA, the worst- performing bank stock in the benchmark Bovespa index, is stepping up lending to small and mid-sized companies in a bid to improve interest margins and support its share price.
Santander lending to those companies will grow as much as 25 percent in 2011, faster than its overall credit portfolio growth target of about 15 percent, Santander Brasil Chairman Fabio Barbosa said in an interview at Bloomberg’s New York headquarters yesterday. The bank also is focusing on real-estate and credit-card financing, he said.
Since Madrid-based Santander sold shares in its Brazilian unit in October 2009, the stock has slumped 24 percent, compared with a 2.5 percent gain for Banco Bradesco SA (BBDC4) and a 2.3 percent slide for Itau Unibanco Holding SA (ITUB4), the country’s two biggest non-state banks. Santander’s lending in Latin America’s largest economy increased 16 percent last year, compared with growth of more than 20 percent at Bradesco.
“The market is saying I would like you guys to leverage more the bank,” said Barbosa, who stepped down as chief executive officer in February to become chairman. “It is a point in time where we say let’s be more focused on the ones which yield better returns.”
Santander, the third-biggest non-state-owned Brazilian bank, is underperforming in the stock market because it’s overcapitalized and delayed credit growth following the acquisition of ABN Amro Holding NV’s Brazil unit in 2007 and after the global financial crisis a year later, Barbosa said.
“In the beginning of the recovery in Brazil, which was back in 2009, 2010, it took us a little longer to really believe that Brazil was not going to be as impacted as other countries were,” said Barbosa, 56. “Belonging to an international group, having different experiences around the globe, it took us longer.”
Brazil’s gross domestic product expanded 7.5 percent in 2010, the fastest pace in two decades. The central bank has raised the benchmark lending rate 3.25 percentage points since April 2010 to 12 percent and increased banks’ reserve requirements to cool lending growth and curb inflation.
Annual inflation soared to 6.51 percent in April, the highest rate since 2005 and above the government’s target range.
Net income for Spain’s biggest bank fell 5 percent in the first quarter as a 32 percent drop in profit in its home market was partly compensated by a 27 percent increase in profit in Latin America, including a 23 percent gain in Brazil.
Santander Brasil shares rose 0.7 percent to 17.95 reais in Sao Paulo trading today, paring this year’s drop to 20 percent.
Brazilian banks earn an average profit margin of 15 percent, compared with 7.8 percent for U.S. lenders, according to data compiled by Bloomberg.
Banks may be turning to lending more to small and mid-sized companies as competition grows in financing the largest companies, a market where the country’s state development bank, known as BNDES, is active, said Zeina Latif, an economist at RBS Securities Inc. in Sao Paulo.
After the surge in economic growth last year, many industries are operating near capacity, spurring demand for financing to bolster output, she said.
“There’s robust demand in Brazil,” Latif said in a telephone interview. “Lots of sectors are near full capacity.”
While lending to smaller companies “naturally” is riskier, the higher rates earned on those assets will compensate for any increase in loan delinquencies, said Barbosa, who also chairs Febraban, the country’s banking association. Delinquencies won’t rise much because economic growth remains strong, he said.
“The delinquency on the small and mid-sized companies naturally has to be bigger than the delinquency on triple-A names,” said Barbosa, who took over as chief executive officer of ABN Amro’s Brazilian unit in 1996 and stayed atop the bank after the purchase by Santander four years ago. “It goes up just because it is a business dynamic.”
Itau Unibanco, Brazil’s biggest bank by market value, increased provisions for bad loans amid expectations default rates will rise after the government measures to restrict credit and central bank rate increases.
The Finance Ministry forecasts the economy will expand 4.5 percent this year. While Brazil struggles to grow at an annual pace of more than 5 percent without triggering inflation, the expansion is spreading to poorer people and to regions throughout the country, Barbosa said.
“Brazil is growing on several layers of this pyramid and spread out around the country,” he said. “There are more companies coming to the market and having access to credit. Therefore, I am going to the high-margin business, if you will, from a bank perspective.”
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