--Major banks to release first-quarter earnings next week
--Lending turns sluggish after 2012 GDP growth of just 0.9%
--Banking shares still seen as solid ballast for portfolios
By Rogerio Jelmayer
SAO PAULO--A frustrating economic slowdown is likely to catch up
with Brazil's banks when they begin releasing first-quarter
earnings reports next week.
"Overall, we expect uninspiring results. In our view, most of
the private banks should report limited loan portfolio growth on
the back of still weak economic activity and concerns over asset
quality," Gustavo Schroden, a banking analyst at the Espirito Santo
investment bank, wrote in a research report this week.
Brazil's economy expanded by a disappointing 0.9% in 2012.
Growth is expected to improve this year, but only in the second
half.
Loan growth for the entire financial industry in February, the
last month for which complete figures are available, was a tepid
0.7% against the previous month. Delinquencies were stable, but
high, at 5.6%.
State-run banks may fare better than their private peers when it
comes to loan growth, but expanded lending could also bring a rise
in delinquencies. Since 2011, Brazil's government has been
pressuring state-run banks to ramp up consumer and business loans
as a way to buoy a sinking economy.
Among private banks, Banco Bradesco SA (BBD) is set to
inaugurate first-quarter earnings releases Monday, followed by
Banco Santander Brasil SA (BSBR, SANB11.BR, SANB3.BR, SANB4.BR),
the Brazilian unit of Spanish bank Banco Santander SA (SAN,
SAN.MC), on April 25, and Itau Unibanco SA (ITUB, ITUB4.BR), which
expects to publish earnings on April 30. Latin America's largest
bank, state-run Banco do Brasil SA (BDORY, BBAS3.BR), will release
its earnings in May.
"The three [private sector] banks face several common challenges
in 2013 as competition increases, lower interest rates dent core
profitability and funding conditions remain tight," Moody's said in
a report April 10.
Brazil's central bank began to systematically reduce its Selic
base interest rate in August of 2011, pulling it down from 12.5% to
an historic low of 7.25%.
Falling interest rates brought tighter spreads, the difference
between what banks pay depositors and what they charge for loans,
squeezing profit margins. But as rates plunged, the government also
turned up the heat on the issue of fees, the money banks charge
customers for everything from credit cards to overdrafts.
For years, Brazil's biggest banks posted return-on-equity, or
ROE, levels well above 20%. In 2012, the big banks fell below the
20% level. ROE is a key measure of profitability.
Despite the likely decline in profits, investors still see bank
shares as a safe port.
"Despite all these challenges, we still have the major banks in
our portfolio," said Joao Pedro Brugger, who oversees 300 million
Brazilian reais ($150 million) in equity and fixed-income assets at
Leme Investimentos in the southern Brazilian city of Florianopolis.
"Although yields may fall, they are still very solid and represent
a good level of protection for our portfolio."
So far this year, banking shares have outperforming the local
stock exchange. Banco do Brasil's shares were up 4.8% through April
18. Bradesco's shares dropped a nominal 0.13%, while Itau retreated
2.1% and Santander Brasil fell 4.54%. However, the main local
stocks index, the Ibovespa, was down 24% over the same period.
Write To Rogerio Jelmayer at rogerio.jelmayer@dowjones.com