Banco do Brasil Shares Fall on Profit Tumble, Provision Surge

  • Brazil’s biggest bank increased set-aside for bad loans 62%
  • Follows Itau, Bradesco in missing analysts’ estimates

Banco do Brasil SA fell as much as 5.6 percent after first-quarter profit tumbled and provisions for bad loans surged, following Itau Unibanco Holding SA and Banco Bradesco SA in missing earnings 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 ($2.62 billion) for bad loans, up from 5.65 billion reais a year earlier, according to a regulatory filing Thursday. The increase was for a specific customer in the oil and gas industry, which the Brasilia-based company didn’t identify. Earnings adjusted for one-time items slid almost 60 percent.

The results were a “significant earnings miss as non-performing loan risk surges,” UBS AG analysts including Philip Finch wrote in a note to clients. “The main concern for Banco do Brasil remains asset quality.”

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.

Outlook Worsens

Banco do Brasil raised 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. Chief Financial Officer Jose Mauricio Pereira Coelho told reporters in Sao Paulo that the company also expects delinquency rates to continue rising.

Shares of the company dropped 4.3 percent to 19.60 reais at 12:16 p.m. in Sao Paulo, compared with a 0.4 percent decline for the Ibovespa benchmark index. The stock had advanced 39 percent this year through Wednesday.

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 the 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.

The provision for the unidentified company was 2.02 billion reais, Coelho said, calling the set-aside “adequate.”

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