April 30, 2020 / 10:02 AM / a month ago

UPDATE 2-Brazilian bank Bradesco boost provisions, shares slump

(Adds CEO comments, shares)

By Carolina Mandl

SAO PAULO, April 30 (Reuters) - Brazilian lender Banco Bradesco SA is setting aside 2.7 billion reais ($506.1 million) for expected COVID 19-related loan losses and may provision more in the coming months amid what its chief executive called a more severe crisis than previous ones.

“Our goal was to preserve the bank’s solidity to face future challenges,” Octavio de Lazari told journalists in a call on Thursday. “This crisis now is more severe than the ones Brazil faced in 2008 and 2016,” he added, referring to the financial crisis and a severe domestic recession triggered by a bust in commodities prices.

Bradesco posted recurring net income, which excludes one-off items, of 3.753 billion reais, down nearly 40% from a year earlier and below a Refinitiv estimate of 5.975 billion reais.

Return on equity, meanwhile, dropped 9 percentage points from the previous quarter to 11.7% as a result of the higher provisions.

Preferred shares in Brazil’s second largest private-sector lender were down almost 6% in mid-morning trading.

“We see the result as negative due to the faster-than-expected deterioration in asset quality indicators,” analysts at Credit Suisse said in a note to clients, adding that provisions are likely to keep an upward trend.

The bank’s loan-loss provisions soared 86% from a year earlier to 6.708 billion reais in expectation of higher loan delinquencies by consumers and companies struggling with the economic effects of the pandemic. Now it has a buffer of 5.1 billion reais to face an adverse economic scenario.

Lazari said Bradesco is likely to give clients another 60-day debt payment forgiveness extension. Earlier in March, the bank had already cleared the way for borrowers to postpone installment payments for two months.

Along with increasing provisions, the bank is also trying to tackle the crisis through cost-cutting. Bradesco intends to shut 78 more branches than it had predicted in the beginning of the year, totaling 378 units.

The lender scrapped its 2020 results outlook because of coronavirus-related uncertainty, and Lazari said he could not predict when the economy might recover.

The COVID-19 outbreak had only minor impact in Brazil until mid-March, so its impact on first-quarter banking operations has been limited.

Bradesco’s loan book grew by 5.1% from December, mainly through corporate loans, as large companies looked to bolster balance sheets ahead of an expected deep recession.

Lazari said that since mid-March the bank had extended 57 billion reais in new loans, but that demand for credit was now slowing down.

Fee income rose 2.6% from a year earlier, on checking account and brokerage fees.

$1 = 5.3348 reais Reporting by Carolina Mandl Editing by David Goodman and Nick Zieminski

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