Bloomberg News

Bradesco Boosts Credit-Loss Provisions as Default Rate Rises

July 27, 2011

(Updates share price in eighth paragraph.)

July 27 (Bloomberg) -- Banco Bradesco SA, Brazil’s third- biggest bank by assets, increased provisions for soured loans in the second quarter as the default rate rose amid a surge in lending that exceeded the national average.

Bradesco raised credit-loss provisions by 3.3 percent to 2.44 billion reais ($1.6 billion) compared with the previous quarter, the company said today in a statement. Total provisions for bad loans increased 3.7 percent to 17.37 billion reais in the second quarter, compared with 16.74 billion reais at the end of March, Bradesco said. The Osasco-based company posted a 15 percent increase in profit that beat analysts’ estimates.

The bank’s loan portfolio expanded by 23 percent in the second quarter from a year earlier to 319.8 billion reais and total assets increased 24 percent to 689.3 billion reais, according to the bank. Loans to large companies led credit growth with a 28 percent increase, while loans to individuals advanced 14.6 percent in the second quarter from a year earlier.

The strength of the corporate segment is an improvement in Bradesco’s credit portfolio, as default rates tend to be lower than in the personal credit segment, Fernando Salazar, a Sao Paulo-based analyst at Fator Corretora wrote in a report today.

The average default rate, a measure of payments at least 90 days overdue, rose to 3.7 percent at the end of June from 3.6 percent in the previous quarter.

Bradesco maintained its guidance of credit growth between 15 percent and 19 percent this year. Chief Executive Officer Luiz Carlos Trabuco Cappi said he doesn’t foresee a credit bubble in Brazil. “We continue to have confidence in a scenario of sustainable credit growth in Brazil,” he said on a conference call with reporters today.

Default Rates

Default rates will remain stable this year as a strong labor market will allow borrowers to pay debts, Investor Relations Director Domingos Figueiredo de Abreu said on the call.

Bradesco shares fell as much as 3.05 percent to 28.30 reais and lost 1.2 percent to 28.83 reais at the close of trading at 4:17 p.m. New York time. The benchmark Bovespa index lost 1.8 percent.

Second-quarter adjusted net income, which excludes one-time items, climbed 15 percent to 2.83 billion reais, or 2.82 reais a share, from 2.46 billion reais, or 2.19 reais, in the same period a year earlier, according to the statement. That beat the 2.79 billion-real average estimate of four analysts in a Bloomberg survey. Net income rose 15.8 percent to 2.79 billion reais from 2.41 billion reais a year earlier.

Outstanding Credit

Total outstanding credit in Brazil expanded 20 percent in June from a year earlier, led by a 50 percent increase in mortgages, even as policy makers have taken steps to slow the increase in lending. Credit expanded at its fastest monthly pace in 2011, rising 1.6 percent in June to 1.834 trillion reais, the central bank said today. The pace of expansion matched the rate seen in May.

The average consumer default rate was unchanged at 6.4 percent. Company loan defaults were also unchanged at 3.8 percent. Defaults are likely to fall in the second half of the year, due to wage growth and low unemployment, Tulio Maciel, the central bank’s economic department chief, told reporters in Brasilia today.

--With assistance from Laura Price in London. Editors: Peter Eichenbaum, William Ahearn

To contact the reporter on this story: Adriana Brasileiro in Rio De Janeiro at abrasileiro@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net


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