Bradesco Balks at Chasing Itau’s Expansion Plans AbroadFrancisco Marcelino
Banco Bradesco SA is balking at following the strategy of its bigger rival, Itau Unibanco Holding SA, in expanding outside Brazil for profit growth.
Bradesco, Latin America’s second-largest lender by market value, is focusing instead on expansion possibilities for its retail business in Brazil’s domestic market, and can profit from the bank’s large distribution network, according to Executive Managing Officer Luiz Carlos Angelotti.
“Though some markets in the region are interesting, their returns are lower than Brazil’s,” Angelotti, 49, said in an interview at the bank’s headquarters in Osasco. “The focus of Bradesco’s retail operation is still Brazil.”
Bradesco’s confidence in Brazil comes as the world’s second-biggest emerging market struggles to revive its economy amid rising inflation. Under President Dilma Rousseff’s administration, the nation ended 2013 with the slowest three-year growth period in a decade, while inflation accelerated to 5.91 percent last year from 5.84 percent in 2012.
Itau, meanwhile, has turned to faster-growing economies in Latin America in response, agreeing to buy control of Chile’s Corpbanca SA in January for $2.2 billion. It marked the region’s biggest bank acquisition in almost five years. An Itau press official declined to comment on the bank’s international strategy in an e-mail.
Returns on Equity
Although Brazilian growth will be little changed this year at about 2 percent, the banking environment is improving as delinquencies and provisions for loan losses remain steady after declining in 2013, Angelotti said.
That will help the bank post returns on equity of as much as 20 percent, he said. It would be the first increase after falling for three straight years, according to the bank’s earnings statements.
“While banks are focusing on less-risky loans, borrowers have been planning better before tapping credit lines,” Angelotti said.
Itau, the biggest lender in the region, aims to gain scale to achieve an ROE of about 20 percent in Chile, Chief Executive Officer Roberto Setubal said in the bank’s quarterly earnings conference call last month. Corpbanca had an ROE of 13.2 percent last year, compared with Bradesco’s 17.7 percent and Itau’s 21.3 percent, according to the companies’ earnings statements.
Bradesco is expected to post an ROE of 18.96 percent this year, while estimates for Itau stand at 20.64 percent, according to the average of 13 analysts surveyed by Bloomberg.
“Bradesco and Itau have different strategies -- neither is right or wrong, just different,” Carlos Daltozo, an analyst at Banco do Brasil SA in Sao Paulo, said in a telephone interview. “Itau has always been more aggressive with acquisitions. Bradesco has always focused on organic growth.”
Before today, Bradesco rose 3.9 percent since Jan. 29, when the Corpbanca deal was announced, compared with an increase of 1.8 percent for Itau.
Bradesco is betting on its network of more than 4,650 branches to offer mortgage loans to first-time homebuyers, payroll lending to those seeking to reduce borrowing costs and insurance products. The bank’s network ranks as the second biggest in Brazil, after federally controlled Banco do Brasil’s 5,458 branches, central bank data show. Itau comes in third with 3,904 locations.
Setubal has said Itau will continue looking for expansion opportunities in retail banking in Mexico and Peru. Angelotti sees less-risky mortgage and payroll loans leading Bradesco’s expansion this year.
Grupo BTG Pactual, the investment bank controlled by billionaire Andre Esteves, is also expanding in Latin America. The Sao Paulo-based company expects to open a bank in Chile as soon as August, according to Jorge Errazuriz, partner and CEO of the BTG Pactual Chile SA Corredores de Bolsa unit.
In its fourth-quarter earnings statement, Bradesco forecast its loan book to grow between 11 percent and 14 percent, after increasing 11 percent last year to 427.3 billion reais ($183 billion). That compares with a 2014 growth target of 10 percent to 13 percent for Itau, which ended 2013 with a loan book of 509.9 billion reais. That included 39.1 billion reais in loans in Latin America excluding Brazil.
“Brazil is a continental country, and even if the South or Southeast regions aren’t growing fast, the Northeast is,” Henrique Kleine, head analyst at brokerage Magliano SA in Sao Paulo, said in a telephone interview. “Banks with huge distribution networks like Bradesco can take advantage of faster growth in some states.”