Itau Follows Bradesco Boosting Provisions for Brazil Crisis

  • Brazilian bank's set-aside for souring loans jumps 31%
  • First-quarter earnings fall short of analysts' estimates

Itau Unibanco Holding SA reported a 31 percent surge in provisions for souring loans, joining Banco Bradesco SA in missing first-quarter profit estimates as the industry copes with Brazil’s worst recession in a century.

Shares of the company fell the most in almost a month after bad-loan provisions jumped to 7.23 billion reais ($2.1 billion) in the first quarter from 5.52 billion reais a year earlier. The wholesale-loan business accounted for 2.91 billion reais of the total, almost double last year’s figure, “mainly due to higher provisions for specific economic groups,” Sao Paulo-based Itau said in a statement Tuesday, without giving more details.

“The main concern remains asset quality,” UBS Group AG analysts including Philip Finch wrote in a report to clients Tuesday.

Brazil’s recession is making it harder for borrowers to keep paying their debt on time. Bradesco, the region’s second-biggest bank by market value behind Itau, missed profit estimates last week because of an 836-million-real provision linked to a specific corporate case, which it didn’t identify. A person directly involved in the matter said the provisions were for oil-rig company Sete Brasil Participacoes SA, which filed for bankruptcy protection on April 29.

Itau tapped a guarantee fund in February after Sete Brasil was unable to pay back loans. The bank’s provision increase was “anticipatory” and not related to one specific company, Marcelo Kopel, the bank’s investor-relations officer, told reporters Tuesday.

Shares of the bank dropped 3.8 percent to 30.73 reais at 10:23 a.m. in Sao Paulo, paring this year’s gain to 16 percent. Bradesco fell 2.2 percent to 24.81 reais and the benchmark Ibovespa index declined 1.6 percent.

Net Income

Itau’s first-quarter recurring net income, which excludes one-time items, slid to 5.24 billion reais, or 88 centavos a share, from 5.81 billion reais, or 97 centavos. That compares with the 5.31 billion-real estimate of nine analysts surveyed by Bloomberg. Net income was 5.18 billion reais, down from 5.73 billion reais.

Debt overdue more than 90 days rose to 3.9 percent in the first quarter from 3 percent a year earlier. In February, Itau said it expects bad-loans provisions to range between 22 billion reais and 25 billion reais in 2016, compared with 18.1 billion reais in 2015. It didn’t adjust the forecast Tuesday.

Provisions for Itau’s retail customers were a bright spot, dropping 6.4 percent to 4.32 billion reais.

The bank’s net interest margin widened to 10.9 percent in the first quarter from 10.5 percent a year earlier, according to the statement.

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