Banco do Brasil Leads Ibovespa Higher as Lending Margins Climb

  • Bank’s shares post biggest increase in more than three weeks
  • Loan profitability forecast to increase further this year

Banco do Brasil SA led gains on the nation’s benchmark stock index after reporting higher lending margins and raising its forecast for net interest income.

The bank’s shares rose 4.4 percent to 21.78 reais at 2:03 p.m. in Sao Paulo, the biggest gain in more than three weeks and the largest for the 59-company Ibovespa index, which advanced 1.4 percent.

Second-quarter net interest income, or revenue from interest earned on assets compared with payments to depositors, rose to 14.6 billion reais ($4.7 billion) from 12.5 billion reais a year earlier, the Brasilia-based lender said in a regulatory filing Thursday. The bank attributed the gains to its strategy of repricing its loan portfolio. The net interest margin increased to 4.9 percent from 4.3 percent.

“Operating income is expanding well above other large banks,” Francisco Kops, an analyst at Banco Safra SA, wrote in a report. The growth of NII, which is part of operating income, was “impressive” considering the bank’s loan portfolio remained flat, according to the report.

Banco do Brasil raised its forecast for net interest income growth to 11 percent to 15 percent this year, up from a previous 7 percent to 11 percent range, according to the filing. It said the new estimate “reflects the higher profitability of the loan portfolio.”

Loan Growth

The company boosted its forecast even as it lowered a prediction for growth in its total domestic loan portfolio, to a range between a 2 percent contraction and a 1 percent expansion. That was down from a previous forecast of an expansion of 3 percent to 6 percent. Corporate lending will be the biggest drag, declining 6 percent to 10 percent this year, the firm said.

Banco do Brasil’s adjusted net income declined to 1.8 billion reais from 3.04 billion reais a year earlier, missing the 1.91 billion-real estimate of six analysts surveyed by Bloomberg. Net income dropped 18 percent to 2.47 billion reais.

Profit was hurt mostly by provisions related to “a specific case of the business segment of oil and gas,” the bank said in the filing, without naming the company involved.

Fully Covered

Banco do Brasil now has provisions for this specific case covering 100 percent of the exposure, Chief Executive Officer Paulo Rogerio Caffarelli told reporters Thursday. The bank’s bad-loan provision will decline in the second half of the year compared with the first, Chief Financial Officer Jose Mauricio Pereira Coelho said at the same press conference.

Brazilian banks have been struggling through the worst recession in more than a century, which is fueling bankruptcies and boosting bad-loan provisions. In April, oil-rig supplier Sete Brasil Participacoes SA sought protection from creditors on about 18 billion reais in liabilities, then the nation’s biggest bankruptcy case. Two months later, telecommunication company Oi SA took the top position with a protection request for 65 billion reais in debt.

Banco do Brasil set aside 8.28 billion reais to cover souring loans in the second quarter, down from 9.15 billion reais in the previous three months and up from 5.19 billion reais a year earlier. The company said debt overdue more than 90 days climbed to 3.27 percent from 1.89 percent a year earlier, hurt by exposure to the oil and gas industry.

Earlier this month, Itau Unibanco Holding SA’s second-quarter profit beat analysts’ estimates on higher revenue from fees and commissions. Last month, Banco Bradesco SA, Brazil’s second-biggest bank by market value, missed earnings estimates on bad-loan provisions.

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