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By Guillermo Parra-Bernal
SAO PAULO, Nov 10 (Reuters) - Early indicators are pointing to a recovery in Brazil’s economic activity, which could help feed into demand for credit or prevent loan defaults from hitting records in coming months, executives at Banco Bradesco SA said on Thursday.
In a conference call to discuss third-quarter results, Chief Executive Officer Luiz Carlos Trabuco said the worst of Brazil’s harshest recession in eight decades has passed, noting the economy should react to policy stimulus next year. Demand for new loans should gain momentum soon as a result, he said.
Trabuco’s remarks came after Bradesco for the first time presented results including HSBC Bank Brasil, which it acquired last year. Trabuco sees HSBC Brasil providing Bradesco with a platform to seize growth opportunities with high-end clients now that Latin America’s largest economy is on the mend.
Banks in Brazil have struggled with slumping activity amid the country’s worst recession since the 1930s as well as fallout from a sweeping corruption probe into state companies and large corporate borrowers. Both situations stoked a doubling in Brazilian bankruptcy filings in the past year.
“The country is finally entering a new cycle after dragging along for a while with one of the worst downturns on record,” Trabuco said.
The absorption of HSBC Brasil had a mixed effect on Bradesco’s third-quarter results, which beat profit estimates but showed eroding loan book quality and capital trends. Shares posted their biggest intraday drop in nearly four months, reflecting the daunting task facing Trabuco as he seeks to yield hefty synergies from the integration.
Recurring net income rose 8 percent to 4.46 billion reais ($1.38 billion) topping an average consensus estimate of 4.038 billion compiled by Thomson Reuters. Return on equity, a gauge of profitability, rose slightly to 17.6 percent last quarter, yet beating estimates by a large margin.
Still, under new guidance that included HSBC Bank Brasil’s numbers on a pro forma basis since January 2015, new disbursements could shrink and loan-loss provisions could rise this year.
Loans in arrears for 90 days or more, a benchmark for defaults, jumped to 5.4 percent of outstanding credit from 4.6 percent. Consensus estimates put the so-called default ratio at 4.8 percent.
Loan-loss provisions rose 14 percent to 5.74 billion reais, higher than a consensus estimate of 4.968 billion. The jump was due to the alignment of HSBC’s loan book with Bradesco’s provisioning standards and a single case which raised expenses by 1.2 billion reais.
Interest and fee income jumped last quarter thanks to the inclusion of HSBC Brasil numbers, while provisions climbed to reflect Bradesco’s more cautious tack on credit risk and loan defaults at the former local unit of HSBC Holdings Plc.
Preferred shares in the Osasco, Brazil-based lender are up 80 percent this year, the biggest gainer among Brazil’s private-sector banks.
$1 = 3.2351 reais Editing by Jason Neely and Bill Trott