(Rewrites throughout with CFO comment and bank figures)throughout)
SAO PAULO, May 6 (Reuters) - Itaú Unibanco Holding SA is prepared to navigate through an expected worsening of Brazil’s economic conditions in the second quarter following steps to bulk up provisions for mostly corporate loans gone sour, Chief Financial Officer Eduardo Vassimon said on Wednesday.
The preemptive move gives Brazil’s second biggest bank by assets the ability to stymie the impact of a weak job market, sagging industrial activity and rising loan defaults, Vassimon said in a conference call to discuss Itaú’s first-quarter earnings.
He said the pace of bulking up provisions would slow in subsequent quarters.
According to Vassimon, the worst of Brazil’s downturn will likely be seen throughout the second quarter. Industrial output plunged a bigger-than-expected 3.5 percent in March, government data showed earlier in the day, and economists expect borrowing costs to rise to the highest in more than seven years at the end of May.
“We believe that the provision expenses that we saw in the previous quarter won’t repeat in the next, they were unusually high,” said Vassimon, who was tapped this year as CFO in a broad reshuffle of the bank’s top management.
In spite of the bearish outlook for credit demand, defaults and economic activity, loan-loss provision expenses could reach 16.5 billion reais ($5 billion) for the year, or the mid-point of Itaú’s guidance range of 15 billion reais to 18 billion reais. Most analysts are expecting LLPs, as provisions are known, to reach closer to the ceiling of that range.
Shares tumbled 2 percent to 37.82 reais, as Vassimon’s remarks failed to assuage concern of the impact of Brazil’s recession on banks. Shares of rivals Banco Bradesco SA and Banco do Brasil SA also slipped.
On Tuesday, Itaú reported recurring net income, or profit excluding one-time items, of 5.808 billion reais last quarter, compared with a Reuters poll estimate of 5.590 billion reais. Recurring return on equity came in at 24.5 percent, compared with the poll’s 23.4 percent estimate.
While the bank rushed to cut the outlook for loan book growth and increase that for LLPs, Vassimon said Itaú’s ability to reprice new loans higher and sell more financial services to clients could ensure a robust gain in interest income for this year.
$1 = 3.034 Brazilian reais Reporting by Guillermo Parra-Bernal; Editing by Chizu Nomiyama and Grant McCool