Banco do Brasil Follows Itau in Raising Provisions for Bad Loans

  • Bank boosted provisions by 62% to 9.15 billion reais
  • Banco do Brasil says set-aside is related to specific case

Banco do Brasil SA said profit dropped 57 percent after it boosted provisions for bad loans, following Itau Unibanco Holding SA and Banco Bradesco SA in missing profit estimates as Brazilian banks struggle through the worst recession in a century.

The bank, Latin America’s largest by assets, set aside 9.15 billion reais ($2.65 billion) for bad loans in the first quarter, up from 5.65 billion reais a year earlier, according to a regulatory filing Thursday. The provision increase was linked to a specific case in the oil and gas industry, which wasn’t specified. The Brasilia-based lender boosted its 2016 forecast for provision growth to a range of 4 percent to 4.4 percent of total loans from a February estimate of 3.7 percent to 4.1 percent.

Major corporations and many other borrowers are paying debt late after falling commodity prices and the nation’s political crisis plunged Brazil into a recession. Last month, oil-rig supplier Sete Brasil Participacoes SA filed for bankruptcy protection with liabilities of 18 billion reais. The company’s failure led Bradesco to book a 836 million-real provision in the first quarter, according to a person directly involved in the matter. Itau’s provisions soared 31 percent to 7.23 billion reais in the first quarter.

Sete Brasil

Banco do Brasil lent about 4 billion reais to Sete Brasil, two people familiar with the matter said last month, while one of them said the bank hadn’t set aside provisions to cover the full amount it’s owed. A spokesman for the lender declined to comment on Sete Brasil at that time.

First-quarter adjusted net income fell to 1.29 billion reais from 3.03 billion reais a year earlier. That compares with the 2.4 billion-real estimate of seven analysts surveyed by Bloomberg. Net income declined 60 percent to 2.36 billion reais.

Banco do Brasil advanced 39 percent this year, compared with a gain of 22 percent for the Ibovespa Benchmark index.

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