Bradesco's Provisions for Bad Loans Surge 27%, Forecast Worsens

  • Loan growth fell short of the bank's forecast for 2015
  • Earnings rise 10% as higher interest rates boost margins

Banco Bradesco SA, Latin America’s second-largest bank by market value, reported a 27 percent jump in provisions for bad loans in the fourth-quarter and said the total would rise again this year.

The set-aside for soured debt increased to 4.19 billion reais ($1 billion) in the fourth quarter from 3.31 billion reais a year earlier, Osasco, Brazil-based Bradesco said in a statement Thursday. Provisions will climb to between 16.5 billion reais and 18.5 billion reais this year from 15.2 billion reais in 2015, according to the bank’s forecast.

“Bradesco’s credit quality deteriorated and the bank signaled it may worsen from now on,” Max Bohm, an analyst at Sao Paulo-based consulting firm Empiricus Research, said in a telephone interview Thursday. Overall results were “neutral,” Bohm said.

Borrowers nationwide are having trouble paying their obligations on time as Brazil’s unemployment rate rises and the central bank boosts interest rates to tame inflation. Debt overdue more than 90 days rose to 3.4 percent in December from 2.7 percent a year earlier, according to central bank data. At Bradesco, the figure increased to 4.1 percent from 3.5 percent.

Bradesco’s delinquency rate will continue climbing this year and stabilize in 2017, Luiz Carlos Angelotti, an executive managing director, told reporters after results were released. The big jump in the fourth quarter won’t be repeated, he said.

Bradesco fell 0.1 percent to 17.35 reais in Sao Paulo at 11:49 a.m., compared with a 0.5 percent decline for the benchmark Ibovespa Index. The shares lost 34 percent last year as the index dropped 13 percent.

Earnings Rise

Fourth-quarter profit rose 10 percent, beating analysts’ estimates, on higher lending margins. Adjusted net income, which excludes one-time items, climbed to 4.56 billion reais from 4.13 billion reais a year earlier. That compares with the average 4.49 billion-real estimate of nine analysts surveyed by Bloomberg.

Higher interest rates helped the bank boost lending margins. Net interest income, or revenue from interest earned on assets compared with payments to depositors, climbed 12 percent to 14.5 billion reais from a year earlier. That matched the bank’s July 2015 growth forecast of a range of 10 percent to 14 percent. NII may expand 6 percent to 10 percent this year, the bank forecast.

Bradesco said lending would increase 1 percent to 5 percent this year, after expanding 4.2 percent in 2015 to 474 billion reais from a year earlier. Last year credit growth was less than the bank’s 5 percent to 9 percent forecast.

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