(Recasts to add comments on provisions)
By Guillermo Parra-Bernal and Aluísio Alves
SAO PAULO, April 29 (Reuters) - Banco Bradesco SA is prepared to deliver return on equity around 20 percent this year even if loan-loss provisions rise faster than loan book growth in the months ahead, Chief Financial Officer Luiz Carlos Angelotti said on Wednesday.
The Osasco, Brazil-based bank, which witnessed an unexpected surge in loan defaults in the first quarter, estimates provision expenses rising between 8 percent and 12 percent even if Latin America’s largest economy deteriorates more rapidly, Angelotti said at a conference call to discuss earnings.
According to Angelotti, the jump in defaults was the byproduct of seasonal factors that are already fizzling. He denied that Brazil’s lengthy downturn finally filtered down into Bradesco’s earnings or hampered demand for financial services and the ability of consumers and companies to honor their debts.
“We’ll see provisions returning to normal by year-end,” he said, adding that return on equity, or ROE, should “be around the levels we have seen, no matter what.”
Bradesco felt the pinch of Brazil’s flagging economy as loan defaults rose for a second quarter in three and declining fee and insurance income took away luster from its profit beat. Shares dropped 2.2 percent, indicating tougher times for banks ahead, traders said.
The 90-day default ratio rose to 3.6 percent, the second gain in three quarters. Forward-looking delinquencies, or defaults between 15 days and 90 days, climbed a half percentage point in the quarter.
Provisions rose 8.3 percent in the quarter and 25 percent on an annual basis as the quality of loans to small- and mid-sized companies and consumers sharply deteriorated.
While the numbers support the consensus quarterly profit estimates for coming quarters, the worsening outlook for the quality of credit “flashes a yellow light and is a point of concern,” said Marcelo Telles, an analyst with Credit Suisse Securities.
Recurring net income hit 4.274 billion reais ($1.45 billion) in the quarter, beating a Reuters poll estimate of 4.261 billion reais. ROE, a gauge of profitability for banks, hit 22.3 percent - the highest in almost four years and above the poll’s 20.8 percent estimate.
A strong jump in interest income lifted earnings, as higher interest rates allowed Bradesco to charge more for loans. Expenses dropped about 10 percent in the quarter, reflecting Chief Executive Officer Luiz Carlos Trabuco’s efforts to boost profitability through higher cost efficiency.
$1 = 2.945 Brazilian reais Editing by Louise Heavens, Meredith Mazzilli and Phil Berlowitz