Itau Unibanco Holding SA is set to join Banco Bradesco SA in cutting forecasts for credit growth this year as a cooling economy curbs demand for loans from Latin America’s two biggest banks, according to analyst reports.
Itau, which in April projected new loans would increase as much as 14 percent this year, will probably say credit expanded as little as 8.5 percent when it reports second-quarter results on July 30, analysts at Banco Safra SA said in a note last week. Bradesco this week lowered its estimate to between 11 percent and 15 percent from a range of 13 percent to 17 percent.
Economic growth is slowing as stimulus measures such as tax cuts fail to offset a drop in spending caused by faster inflation and street protests across Brazil. First-quarter household spending fell to the lowest level since 2011 and growth declined to 0.55 percent, while annual inflation in June topped the upper limit of the central bank’s target range.
“The economy is changing significantly and the banks must follow these changes,” Rodolfo Amstalden, an equity analyst at consulting firm Empiricus Research, said in a telephone interview. “Itau has room to reduce its credit-growth forecast, which is already modest.”
Itau declined to comment on loan forecasts, according to a press official at the Sao Paulo-based company. Osasco-based Bradesco declined to comment, according to a press official.
Itau’s book of loans rose 9.2 percent to 456.2 billion reais ($203.4 billion) in the first quarter from a year earlier, the company said in April.
Bradesco’s portfolio of loans rose 10 percent to 402.5 billion reais in the second quarter, slower than the 14 percent expansion a year earlier and 12 percent in the previous three months. The bank expects credit to expand at about 13 percent this year, the mid-point of its forecast, Executive Director Luiz Carlos Angelotti told reporters July 22.
Itau and Bradesco also reduced their credit-growth forecasts last year, when their portfolio of loans expanded at the slowest pace since 2009.
Reduced lending amid an economic downturn may end up benefitting Itau and Bradesco, said Joao Pedro Brugger, who helps manage about 350 million reais at Leme Investimentos.
“These adjustments will help avoid an increase in delinquency rates in the future,” he said in a telephone interview from Florianopolis, Brazil.
State-owned banks, led by Banco do Brasil SA (BBAS3) and Caixa Economica Federal, have been boosting credit faster than non-state lenders as President Dilma Rousseff tries to revive the economy. State-controlled lenders increased their outstanding loans by 28 percent in the 12 months through May, compared with a 6 percent increase for Brazil’s non-state banks, central-bank data show.
Caixa declined to comment, according to a press official in Brasilia. Banco do Brasil didn’t return an e-mail and telephone call seeking comment.
Nationwide, outstanding loans expanded 16.1 percent to 2.49 trillion reais in May from a year earlier, down from 16.3 percent in April and 16.7 percent in March, the data show.
Economists covering Brazil reduced their growth estimate for 2013 to 2.28 percent from 3.3 percent in December, according to a central bank weekly survey of about 100 economists released this week. It was the 10th straight forecast cut.
Household debt jumped to a record 44.2 percent of annual earnings as of April, according to data from the central bank, which began reporting the figures in January 2005, when the rate was 18.4 percent.
“Another year of poor GDP growth will impact businesses, especially small to mid-sized companies,” Safra analysts including Francisco Kops wrote in their note. “This, combined with the still-high indebtedness of average households and higher interest rates, creates challenging conditions for loan growth.”
To contact the reporter on this story: Francisco Marcelino in Sao Paulo at email@example.com