(Recasts to add view on large corporate defaults, background throughout)
By Guillermo Parra-Bernal
SAO PAULO, Oct 30 (Reuters) - Defaults among large corporate borrowers in Brazil probably peaked, following months of steady increases, as industrial, farming and services firms actively seek to refinance their debts, executives at Banco Bradesco SA said on Friday.
The ongoing rise in defaults among consumers as well as small- and mid-sized firms is unlikely to weigh down the quality of Bradesco’s loan book, they said, as the nation’s No. 2 private-sector lender moves along with a three-year strategy to grow in less risky segments.
In the absence of “surprise events in the coming months, defaults among the large corporate segment should remain flat, or even decline, in our view,” Carlos Firetti, Bradesco’s head of investor relations, said at a conference call to discuss third-quarter results.
Even if some or many of those large borrowers fell in arrears on their loans, Bradesco has amassed sufficient loan-loss provisions as well as generic and excess loan-loss reserves to help the bank navigate through the current credit market cycle without any significant trouble, Chief Financial Officer Luiz Carlos Angelotti noted at the same call.
Their remarks contrast with the prevailing view among most analysts and investors, who say that the risk of more companies failing to roll over or repay their debt is on the rise as they struggle with a record debt burden, the nation’s steepest recession in a quarter century and a slumping currency.
A sample of 1,000 companies in Latin America’s largest economy had debt equivalent to a record 3.1 times 12-month trailing operational earnings this year, with leverage being more widespread than previously thought, analysts at Credit Suisse Securities said in a client note this week.
Large corporate defaults at Bradesco improved in the third quarter, while delinquencies among smaller firms and individuals kept rising, the bank said in its quarterly earnings report released on Thursday.
Last quarter, Bradesco used gains in the value of deferred tax assets to boost so-called excess and generic reserves while setting aside more money to cover loan losses. Management will keep those additional provisions at current levels or higher for as long as necessary, Angelotti said.
Trends in provisions remain the biggest issue for Brazilian banks because of the recession, which could turn out to be the longest since the 1930s.
Bradesco shares rose 1 percent on Friday, partly erasing losses recorded the prior day, when the bank beat third-quarter profit expectations but unveiled a hefty build-up in provisions. (Reporting by Guillermo Parra-Bernal)