Brazil’s Bradesco quarterly profit dips, outlook on loan provisions worsens

Brazilian lender Banco Bradesco SA (BBDC4.SA) on Tuesday reported a 22.8% drop in third-quarter recurring net profit and raised its forecast for set-aside funds that may be needed to cover bad loans.

Bradesco’s recurring net profit totaled 5.22 billion reais ($1.01 billion), coming in below a Refinitiv consensus estimate of 6.76 billion reais.

The lender also raised its expectation for the amount of money it will set aside for non-performing loans this year. It now expects to hold provisions in the range of 25.5-27.5 billion reais, as high interest rates have caused a deterioration in asset quality.

During the July to September period, Bradesco set aside 7.27 billion reais, more than double the amount compared to a year earlier.

Brazil’s second-largest private lender said the increase in provisions reflects a higher turnover in more profitable and riskier operations.

In September, Brazil’s central bank paused an aggressive monetary tightening cycle, leaving its key Selic interest rate at 13.75% after 12 consecutive hikes. The central bank’s rate-setting committee also left its benchmark rate unchanged in October.

Bradesco said its 90-day loan default ratio was 3.9% at the end of September, a 1.3 percentage point growth from a year earlier and 0.4 points above the second quarter ratio.

“We observed the delinquency concentrated in individuals, in the lines of mass market loans, and in companies, substantially in micro and small-sized firms,” said the lender.

Its consolidated loan book grew 13.6% to 878.57 billion reais, mainly driven by credit card transactions, personal and payroll-deductible loans.

Net interest income (NII), a measure of earnings on loans minus deposit costs, from clients grew 24.7% to 17.53 billion reais.

Return on average equity (ROAE), a key metric for profitability, came in at 13%, well below last quarter’s 18.1%.

Analysts at Citi said deteriorating asset quality could be seen not only in the results, but in the firm’s guidance revision.

“While expectations were already low going into the report, we believe that the size of the miss will be disappointing, and the continued deteriorating trend for asset quality reduces visibility on future results,” Citi said.

($1 = 5.1440 reais)