Itau Quarterly Profit Beats Estimates as Provisions Fall

Itau Unibanco Holding SA, Latin America’s biggest bank by market value, said first-quarter profit rose 29 percent, more than analysts estimated, as provisions to cover bad loans declined.

Recurring net income, which excludes one-time items, advanced to 4.53 billion reais ($2 billion), or 91 centavos a share, from 3.51 billion reais, or 71 centavos, a year earlier, the Sao Paulo-based bank said today in a regulatory filing. That beat the 4.46 billion-real estimate of nine analysts surveyed by Bloomberg. Net income was 4.42 billion reais, up from 3.47 billion reais a year earlier.

Itau and Banco Bradesco SA, the two biggest Brazilian banks not owned by the state, have been cutting riskier auto lending to focus on mortgage and payroll loans, helping bring Brazilian default rates to record lows. Debt payments overdue more than 90 days fell to 3 percent in March, the lowest since March 2011, when the central bank began calculating the figure under the current method.

“The main positive highlight of the first quarter, in our view, was once again continued improvement in credit quality,” Carlos Firetti, an analyst at Banco Bradesco, wrote in a report about Itau.

Itau set aside 4.25 billion reais in the first quarter to cover soured loans, down from 4.94 billion reais a year earlier, according to the filing.

Defaults Drop

The bank, led by Chief Executive Officer Roberto Setubal, 59, said in February it expects to have loan-loss provisions of 13 billion reais to 15 billion reais in 2014. Default rates dropped to 3.5 percent in the first quarter, compared with 3.7 percent in the three previous months and 4.5 percent a year earlier.

Default rates may drop at a slower pace in 2014, Marcelo Kopel, Itau’s head of investor relations, told reporters on a conference call today. Delinquencies, which declined for a seventh consecutive quarter, reached a record low, he said.

Last week, Bradesco posted first-quarter adjusted net income of 3.47 billion reais, up 18 percent from a year earlier, as it too reduced provisions to cover bad loans.

Itau, which will become the heaviest-weighted stock on Brazil’s Ibovespa benchmark index on May 5, fell 0.3 percent to 37.68 reais in Sao Paulo at 11:56 a.m. Ibovespa advanced 1.2 percent.

Payroll Venture

Itau said separately that Banco BMG SA agreed to offer payroll loans only through the joint venture it formed with Itau in 2012. Under the new agreement, BMG will increase its stake in the venture to 40 percent from 30 percent. Itau expects Banco Itau BMG Consignado’s loan portfolio to reach 20 billion reais by the end of this year from about 12 billion reais now, Kopel said on the call.

Payroll loans were Itau’s fastest growing credit line, with a 52 percent increase. That portfolio rose 11 percent to 480.1 billion reais from a year earlier, according to the filing.

Itau expects total lending to expand 10 percent to 13 percent this year, it said in February.

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