Fitch: Brazil's Large Private Banks Show Strong YE Results

viernes 6 de febrero de 2015 14:33 GYT

(The following statement was released by the rating agency) NEW YORK, February 06 (Fitch) Brazil's three largest private banks reported strong full-year 2014 results amid a very challenging macroeconomic environment, says Fitch Ratings. Good profitability, solid asset quality and adequate capitalization levels continue to support each of the banks' rating levels, Fitch added. The three banks include Itau Unibanco Holding S.A. (Itau), Banco Bradesco S.A. (Bradesco) and Banco Santander (Brasil) S.A. (Santander). Drivers behind the 2014 results were lower credit costs, higher fee income from other services, the additional increases in Brazil's benchmark SELIC rates and lower competition from public sector banks. Fitch's base expectation is that as Brazil's economy continues to underperform, a jump in credit costs and a contraction in business volume could pressure these banks' net interest margins and bring profitability ratios down. This could be partially offset by higher yields on investments in Brazilian government securities as the SELIC rate is now 12.25%, up from 11.5% as of the end of the third quarter. Profitability remains strongest at Itau and Bradesco, and we believe that these two banks are likely to remain the most resilient of big three banks within the macro challenges. Santander's performance showed improvements in several categories in the fourth quarter, notably in asset quality, but the bank continues to lag its two closest peers in profitability. Asset quality indicators have improved at all three banks in part due to conservative credit underwriting and the continued shift in the product mix toward lower risk segments. The banks made improvements in impairment levels and higher levels of reserve coverage; however, Fitch expects to see some deterioration in asset quality metrics during 2015 in both the retail and wholesale segments given the combination of high inflation, a possible increase in unemployment and sluggish loan demand due to high interest rates. Negative factors affecting the energy, construction and commodities sectors will also be headwinds. In addition to the potential economic impact of the Petrobras' 'Lava-Jato' scandal, an unlikely unfavorable decision by the Supreme Court decision related to past economic plans and the possible rationing of electricity due to the extremely low reservoir levels are also concerns. Loan loss reserve levels are comfortable, and capitalization levels comfortably exceed the minimum Basel III phase-in requirements. Highlights of individual bank results are as follows: Bradesco reported last week full-year adjusted net income of BRL15.36 billion, up nearly 26% year over year (yoy), resulting in an adjusted return on average equity (ROAE) of 20.1% and an adjusted return on average assets (ROAA) of 1.6%. The bank's expanded loan portfolio reached BRL455 billion, up nearly 7% yoy. Total regulatory capital ratio improved to 16.5%, and the Tier I regulatory ratio was 12.9%. The bank reported its best ever efficiency ratio of 39.2% in 2014, also the best among the domestic large private sector peers. Asset quality metrics were strong and showed further improvement with the over 90-day past due loans to total loans ratio returning to 3.5% and a 189% coverage of the over 90-day past due loan amount. Bradesco maintained its excess loan loss reserves (i.e. reserves that are constituted in addition to the minimum required by local regulators) at BRL4.0 billion. Bradesco indicated expectations for loan growth of 5%-9% in 2015 (actual 2014 was 6.5%). Itau reported a full-year recurring net income of BRL20.6 billion, up slightly over 30% yoy, resulting in a recurring 12-month ROE of 24%. Itau's expanded loan portfolio reached BRL560 billion, up 9.8% yoy. The total regulatory capital ratio was 16.9% and the Tier I regulatory ratio was 12.5%. Asset quality metrics showed further improvement as the over 90-day past due loans to total loans ratio reached a very low 3.1%, the best among direct domestic private sector peers. Itau's excess loan loss reserves cushion, reached BRL6.2 billion, an increase by BRL1.1 billion in the period due to macroeconomic scenario and its potential impacts on specific sectors. Itau indicated expectations of loan growth in the 6%-9% range in 2015 (actual 2014 9.8%). Banco Santander (Brasil) reported its managerial defined net profit for full-year 2014 of BRL5.850 billion, up almost 2% yoy, resulting in an adjusted ROAE (excluding goodwill) of 11.5% and an adjusted ROAA of 1.2%. Santander's expanded loan portfolio reached nearly BRL311 billion, up 11% yoy. The total regulatory capital ratio was 17.5% and the Tier I regulatory ratio was 16.1%, the strongest ratio among the domestic large private and public banks. Asset quality metrics showed good improvement as the over 90-day past due loans to total loans ratio fell to 3.3% from 3.7% in the previous quarter and year. Contact: Robert Stoll Director Financial Institutions +1 212 908-9155 33 Whitehall Street New York, NY Eduardo Ribas Director Financial Institutions +55 11 4504-2213 Alameda Santos, 700 - 7 andar Sao Paulo, Brazil Matthew Noll, CFA Senior Director Financial Institutions - Fitch Wire + 1 212 908-0652 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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