Weak Earnings Expected From Brazil's Banks
April 26 2016 - 1:30PM
Dow Jones News
By Rogerio Jelmayer
SÃO PAULO -- Brazil's biggest banks this year are facing
declining earnings due to weak demand for credit and a rise in bad
loans amid a deepening recession.
Investors will get their first peek later this week at how banks
in Latin America's largest economy are faring as growing numbers of
consumers and businesses have difficulty paying their bills.
The Brazilian unit of Spain's Banco Santander SA reports on
Wednesday, and Banco Bradesco SA is scheduled to release earnings
on Thursday. Itau Unibanco Holding SA, Brazil's biggest
private-sector bank by assets, reports on May 3.
A rising number of delinquent loans will force banks to boost
their loan-loss provisions, eating into profits, analysts say.
"Delinquent loans and provisions will set the tone for bank
profit this year," said Luis Santacreu, an analyst at rating agency
Austin Rating in São Paulo. "Credit will drop in the rest of the
year, which will keep putting pressure on bank results."
The number of Brazilians in arrears on utility bills or loans
rose to 60 million in the first quarter, according to credit bureau
Serasa Experian, the highest proportion in the country of 200
million people since at least 2012, when the company started
compiling the figures.
If Brazil's economy in 2016 contracts at the same pace as last
year's 3.8%, as economists predict, the two-year recession would be
worse than the one suffered by Brazil during the Great Depression
of the 1930s.
The country's banks have started to take a more conservative
approach to dealing with the weak economy. State-run lender Banco
do Brasil SA and private-sector peers Itau and Bradesco started
increasing provisions for bad loans last year. The three banks set
aside nearly 59 billion reais ($17 billion) in 2015, an increase of
more than 30% from 2014, and have said they plan to set aside even
more this year.
Return on equity, or ROE, will decline across the sector,
according to Tito Labarta, a bank analyst at Deutsche Bank.
Mr. Labarta forecasts that the return on equity this year at
Bradesco and Itau will fall below 20% for the first time in at
least two years but remain in the high teens. At best, ROE at Banco
do Brasil and Santander Brasil will be in the low teens, he
said.
Brazil's banks, for now, remain profitable, in contrast with
businesses in other sectors. Competition is limited because just a
few banks dominate, which allows for high fees and commissions.
These banks also garner relatively healthy returns from
government-debt holdings.
Write to Rogerio Jelmayer at rogerio.jelmayer@wsj.com
(END) Dow Jones Newswires
April 26, 2016 13:15 ET (17:15 GMT)
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