(Adds executive comments, updates share performance, details)
By Guillermo Parra-Bernal
SAO PAULO, Oct 30 (Reuters) - Banco Bradesco SA on Thursday raised its revenue growth estimate for the year after third-quarter profit was stronger than expected, a sign loan repricing efforts and less competition helped Brazil’s No. 2 private-sector lender offset the impact of flagging demand for credit.
Bradesco upped the estimate for growth in interest income, or revenue from loan-related transactions, to between 9 percent and 12 percent from 6 percent to 10 percent. The new outlook came even though the bank cut loan-book growth expectations for the year.
The improved outlook for revenue sparked the biggest jump in Bradesco shares in three weeks, and bolstered the case for Chief Executive Officer Luiz Carlos Trabuco’s steps to focus on the most creditworthy borrowers and take advantage of the highest borrowing costs in three years to charge more for new loans.
“Credit spreads should continue to be the main driving force in the coming quarters and next year as the loan portfolio gets repriced at higher rates,” said Credit Suisse Securities senior analyst Marcelo Telles.
Less intense competition is behind the rise in lending spreads, the difference between the interest rate at which a bank lends and the cost of its funding, rather than loan repricing, executives said at an earnings conference call.
Profit excluding one-time items reached 3.950 billion reais ($1.6 billion) in the quarter, up 3.8 percent from the prior three months. A Reuters poll of seven analysts had forecast 3.849 billion reais.
Bradesco shares added as much as 7.2 percent, with the central bank’s decision to raise the Selic overnight lending rate late on Wednesday partially fueling gains.
Despite the profit beat, results came in mixed. Net interest income rose for the third straight quarter, and fee income had its strongest sequential increase in five quarters. Still, loan-loss provisions and loan defaults topped the poll’s estimates, a sign that Brazil’s ongoing recession is slowly weighing down asset quality.
Results by Bradesco, which kicked off the earnings season for Brazilian banks, reinforce optimism over revenue trends next year.
Net interest income of 12.28 billion reais exceeded the poll’s 12.15 billion reais estimate, partly because Bradesco was able to charge higher rates in some market segments. However, income from the purchase and sale of financial securities tumbled 80 percent.
Net interest margin, or the average cost of borrowing that Bradesco charges on loans known as NIM, fell 0.2 percentage points to 7.5 percent as spreads on insurance products narrowed. Bradesco executives expect NIM to end the year at current levels.
Loan-loss provisions rose 6.6 percent to 3.35 billion reais as defaults spiked among some unidentified corporate borrowers. The 90-day default ratio climbed slightly to 3.6 percent, above the poll’s 3.5 percent estimate.
Return on equity declined to 20.4 percent from 20.7 percent in the second quarter. The poll had forecast 19.6 percent.
$1 = 2.4609 Brazilian reais Reporting by Guillermo Parra-Bernal; Editing by Lisa Von Ahn and Meredith Mazzilli