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Banco do Brasil Profit Tops Estimates on Stronger Margin

Banco do Brasil SA, Latin America’s largest bank by assets, said second-quarter profit rose 14 percent, beating analysts’ estimates, as net interest income increased. The shares climbed as much as 4.4 percent.

Adjusted net income, which excludes one-time charges, climbed to 3 billion reais ($1.3 billion) from 2.63 billion reais a year earlier, the Brasilia-based lender said today in a statement. The results topped the 2.54 billion-real average estimate of eight analysts surveyed by Bloomberg.

Banco do Brasil, led by Chief Executive Officer Aldemir Bendine, 50, is boosting margins as it slows credit expansion amid a sluggish economy. Overall lending margins in Brazil reached a 26-month high of 20.9 percent in June, the central bank said last month. Banco do Brasil’s net interest income rose 6.4 percent to 12.4 billion reais in the second quarter from a year earlier, according to the statement.

“The strong result was driven by higher-than-expected NII growth and margin expansion,” Barclays Plc analysts including Cristina Marzea wrote in a note to clients today. “Results are encouraging and could lead to upward revisions in consensus estimates following the announcement of revised guidance.”

The bank raised its forecast for net interest income growth this year to a range of 5 percent to 9 percent from 3 percent to 7 percent, according to the statement.

Net Income

Net income dropped 62 percent to 2.83 billion reais. The decline reflects the one-time gain of 9.82 billion reais in April 2013 related to the initial public offering of its insurance business, BB Seguridade Participacoes SA.

Banco do Brasil rose 4 percent to 28.76 reais in Sao Paulo at 2:22 p.m., leading gains on the Ibovespa benchmark index, which was up 0.2 percent.

Itau Unibanco Holding SA and Banco Bradesco SA, Latin America’s biggest banks by market value, previously reported second-quarter net income that beat estimates on wider lending margins. Itau’s adjusted net income rose 37 percent to 4.97 billion reais, while Bradesco’s profit advanced 28 percent to 3.8 billion reais.

Banco do Brasil boosted its 2014 forecast for return on equity, a measure of profitability, to 14 percent to 17 percent from 12 percent to 15 percent. ROE increased to 17.1 percent in the second quarter from 16.4 percent a year earlier. The rate for debt overdue more than 90 days rose to 1.99 percent from 1.87 percent.

Controlling Delinquencies

“As bad as the macroeconomic scene may be, the banks are keeping delinquencies under control,” Francisco Kops, an analyst at Banco J. Safra in Sao Paulo, said in a telephone interview today.

Banco do Brasil’s Basel III ratio dropped to 14.2 percent in the second quarter from 15.9 percent a year earlier. The bank expects the ratio to improve in the third quarter following the central bank’s cut in capital and deposit requirements last month, Chief Financial Officer Ivan Monteiro told reporters in Sao Paulo today.

The bank is in talks with the Finance Ministry to adapt 8.1 billion reais in hybrid securities to the capital rules devised by the Basel committee on banking supervision, he said. The securities were issued by Banco do Brasil in 2012 in exchange for a capital injection by the Brazilian government, its controlling shareholder.

“Banco do Brasil is negotiating as well with the asset managers and investors who bought some of our local bank bonds to adapt those to the Basel III rules,” Monteiro said. The talks involve about 5.2 billion reais of subordinated letras financeiras, as the bonds are known, he said.

Banco Votorantim SA, in which Banco do Brasil has a stake of about 50 percent, posted net income of 140 million reais. That was the unit’s third-consecutive quarterly profit after nine straight losses.

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