Banco Santander SA (SAN)’s Brazil unit, the nation’s lowest-rated lender by analysts, is missing a rebound in banking stocks as its bad loans rise and lending growth lags behind peers.
Late payments at Banco Santander Brasil SA, the worst- performer among the country’s top four banks in the past six months, rose to 5.5 percent in the fourth quarter, compared with 4.1 percent at Banco Bradesco SA. (BBDC4) Fourth-quarter loans at Sao Paulo-based Santander grew 7.6 percent from a year earlier, versus 12 percent at Bradesco. Santander is Brazil’s fourth- biggest bank by market value and Bradesco is No. 2.
While Bradesco and Itau Unibanco Holding SA (ITUB4) managed to cut delinquency rates and improve credit quality amid recovering economic growth, Santander Brasil said its default rates won’t improve until the end of the second quarter. This helps explain Santander’s 2.35 consensus rating among analysts, the lowest score for a financial firm on the benchmark Bovespa Index, data compiled by Bloomberg show. The figure, a gauge of share-price expectations, is calculated by converting each analyst’s recommendation into a number from one to five.
“Santander is in a tougher position to boost lending,” Renato Schuetz, an analyst at Votorantim Corretora in Sao Paulo, said in a telephone interview. “Its delinquency rates are a little bit higher at the moment, which would make it difficult for the bank to increase lending once the Brazilian economy picks up.”
Santander Brasil trades 37 percent below the 23.50-real ($11.85) initial public offering price from 2009, at 14.81 reais as of 1:06 p.m. in Sao Paulo. The shares dropped 7.3 percent in the past six months, compared with gains of 18 percent at Banco do Brasil SA (BBAS3), 22 percent at Itau and 29 percent at Bradesco.
The bank expects a “gradual improvement of credit quality” as Brazil’s economy rebounds this year, Emilio Botin, chairman of Santander Brasil’s Madrid-based parent company, said yesterday in a web presentation after the bank posted fourth- quarter results. Banco Santander is Spain’s biggest lender.
Santander Brasil’s lending growth in the fourth quarter was a “meager” 2 percent from the previous quarter, Mario Pierry, an analyst at Deutsche Bank AG in Sao Paulo, wrote in a research note after earnings were released. Pierry said his “main point of concern” was the deterioration in credit quality as payments more than 90 days late increased.
Delinquencies rose in the fourth quarter as the lender boosted small- and medium-sized companies’ share of its loan portfolio, Chief Executive Officer Marcial Portela told analysts on a conference call. Oscar Herrero, vice-president of risk management, said on the same call that the delinquency rate will improve at the end of the second quarter.
The company declined to comment on analysts’ consensus recommendations.
Santander Brasil has been a disappointment since its IPO in October 2009, as the bank failed to use excess capital to boost lending more than competitors, said Inigo Vega, an analyst at Nau Securities Ltd. The unit raised 14.1 billion reais in the offering to fund expansion plans.
“When it held the IPO, the outlook for Brazil was great in terms of potential to grow,” Vega said in a telephone interview from Madrid. “But Brazil hasn’t done very well since then, and there were some credit-quality issues in the nation’s lending market.”
Analysts have become more pessimistic about Santander Brasil’s prospects in the past three years, with the consensus rating dropping almost by half, from 4.56 in March 2010. Sao Paulo-based Itau’s rating is 4.48 and Bradesco’s is 4.
Economists estimated Brazil, the world’s biggest emerging market after China, will expand 3.1 percent this year, rebounding from 1 percent in 2012, according to a weekly central bank market survey.
The nation’s delinquency rate for consumers and corporations on payments at least 90 days overdue started improving in December, when it dropped to 5.8 percent, after remaining at a record 5.9 percent between July and November, according to Brazil’s central bank.
Deutsche Bank’s Pierry said speculation the Spanish parent might sell a stake in the unit has helped the shares avoid even deeper declines.
Santander Brasil jumped the most in five months on Jan. 10 after a magazine report that was later retracted said the Spanish parent might sell a stake in its Brazil unit. Bradesco offered to invest in Santander Brasil, Veja reported on its website. The magazine withdrew the report 20 minutes later, saying it was mistaken. Both banks denied they were in talks in separate e-mailed statements.
Botin said last month that the company doesn’t plan to sell assets in Brazil, which he called the bank’s most important country. He said yesterday the company hasn’t had any talks with Bradesco.
Banco Santander yesterday posted fourth-quarter profit that missed analysts’ estimates as it set aside money for future loan losses in Spain. It took provisions of 18.8 billion euros ($25.5 billion) last year after the government ordered banks there to recognize losses on real estate.
Santander Brasil expanded in 2007, when it spent 11 billion euros to purchase ABN Amro Holding NV’s Banco Real unit. The bank “struggled” to increase lending because of the integration process with Banco Real, Schuetz at Votorantim said.
Santander Brasil ended last quarter with a Basel II capital ratio of 20.8 percent, compared with Bradesco’s 16.1 percent. The ratio indicates how much capital banks have compared with loans.
“The bank has lagged competitors in terms of loan-book growth, which isn’t the best use of capital,” Schuetz said.
To contact the reporter on this story: Francisco Marcelino in Sao Paulo at firstname.lastname@example.org