Banco do Brasil Increases Bad-Loan Reserves as Economy Worsens

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Banco do Brasil SA, Latin America’s largest bank by assets, increased money set aside for bad loans 21 percent as the nation heads toward its worst recession in a quarter century.

Reserves climbed to 5.53 billion reais ($1.6 billion) in the second quarter from 4.57 billion reais a year earlier, Brasilia-based Banco do Brasil said Thursday in a statement. The firm also said it expects the figure to grow this year more than previous forecasts.

“All Brazilian banks are increasing provisions because of the economic environment,” Max Bohm, an analyst at the Sao Paulo-based investment-consulting firm Empiricus Research, said in a telephone interview. Banco do Brasil’s delinquency rates were relatively stable in the second quarter, which Bohm said was a positive sign.

Banco do Brasil, led by Chief Executive Officer Alexandre Abreu, is setting aside more money for soured loans as the South American nation heads toward an economic contraction this year that analysts surveyed by Bloomberg peg at about 1.5 percent. Moody’s Investors Service has downgraded the nation’s credit rating twice in the past 18 months.

The bank said debt overdue more than 90 days reached 2.04 percent in the second quarter, up from 1.99 percent a year earlier. It increased its 2015 forecast for provision growth to between 3.1 percent and 3.5 percent from February’s estimate of 2.7 percent to 3.1 percent.

Share Performance

Shares of the company, which declined 14 percent this year through Wednesday, fell 1.6 percent to 20.01 reais at 10:11 a.m. in Sao Paulo, compared with a 0.2 percent increase for the Ibovespa benchmark index.

Itau Unibanco Holding SA, Latin America’s biggest bank by market value, said earlier this month that its loan delinquencies rose for the first time in 11 quarters for the three months through June. The Sao Paulo-based bank’s reserves increased 24 percent.

Banco do Brasil’s adjusted net income, which excludes one-time charges, climbed to 3.04 billion reais from 3 billion reais a year earlier, in line with analysts’ estimates. The bank boosted its estimate for growth in net interest income to a range of 11 percent to 15 percent. The previous forecast was 9 percent to 13 percent.

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