Bradesco Sets Aside More for Bad Loans as Late Payments Grow

  • Provisions climb 15 percent amid Brazil's economic slowdown
  • Bank is using one-time tax gain as additional cushion

Banco Bradesco SA, Brazil’s second-biggest bank by market value, increased provisions for bad loans and used a one-time tax gain for additional protection as late payments climbed.

Third-quarter provisions rose 15 percent to 3.85 billion reais ($989 million) from a year earlier, while delinquency rates increased to 3.8 percent from 3.6 percent, according to a regulatory filing Thursday from the Osasco-based firm. Bradesco said it had an one-time tax gain of 2.34 billion reais, and is using most of it as an additional bad-loan provision in case late payments climb further.

“Higher delinquencies is a natural thing,” Pedro Galdi, an analyst at research firm WhatsCall in Sao Paulo, said in a phone interview. “There are a lot of people already unemployed and a lot that will lose jobs.”

Bradesco, which fell 25 percent this year through Wednesday, dropped 2.4 percent to 21.50 reais at 1:59 p.m. in Sao Paulo.

Brazil is facing its longest recession since the Great Depression, and inflation breached the nation’s 4.5 percent target, leading the central bank to lift its benchmark interest rate to a nine-year high. As a result, the jobless rate rose to 7.6 percent last month, up from 4.9 percent a year earlier.

HSBC Purchase

Bradesco’s coverage ratio for loans overdue more than 90 days increased to a record 205.7 percent in the third quarter from 187.2 percent a year earlier, a move the bank called “prudential" given the economic deceleration.

Bradesco expects delinquencies to increase “slightly” in coming quarters before stabilizing in the second half of 2016, executive managing director Luiz Carlos Angelotti told reporters Thursday. The bad-loan cushion “anticipates an eventual moment of stress” and it’s a “conservative position,” he said, adding that provision levels will probably remain stable.

The company’s Basel III capital ratio dropped to 14.5 percent from 16 percent in the three previous months and 16.3 percent a year earlier. The decline was related to market volatility in Brazil, including the currency, Angelotti said, adding that the ratio may rise as the real recovers against the U.S. dollar.

In August, the bank agreed to buy HSBC Holdings Plc’s unit in Brazil for $5.2 billion, its biggest acquisition ever.

Adjusted third-quarter net income, which excludes one-time items, advanced to 4.53 billion reais from 3.95 billion reais a year earlier. That exceeded the 4.48 billion-real estimate of seven analysts surveyed by Bloomberg. Net income rose 6.3 percent to 4.12 billion reais.

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