Brazil’s Bradesco quarterly profit falls, loan provision outlook deteriorates

SAO PAULO, Nov 8 (Reuters) – Brazilian lender Banco Bradesco SA (BBDC4.SA) on Tuesday reported a 22.8% drop in recurring net profit in the third quarter and raised its earmarked funds forecast which may be required to cover bad debts.

Bradesco’s recurring net profit totaled 5.22 billion reais ($1.01 billion), which was lower than the Refinitiv consensus estimate of 6.76 billion reais.

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

During the July-September period, Bradesco set aside 7.27 billion reais, more than double the amount from the previous year.

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

In September, Brazil’s central bank halted an aggressive monetary tightening cycle, leaving its main 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 default rate was 3.9% at the end of September, up 1.3 percentage points from a year earlier and 0.4 points above the ratio of second trimester.

“We observed concentrated delinquency in individuals, in mass market lines of lending, and in businesses, primarily in micro and small businesses,” the lender said.

Its consolidated loan portfolio increased by 13.6% to reach 878.57 billion reais, mainly thanks to credit card transactions, personal loans and payroll-deductible loans.

Net interest income (NII), a measure of income on loans less deposit costs, from customers rose 24.7% to 17.53 billion reais.

Return on average equity (ROAE), a key measure of profitability, came in at 13%, down from 18.1% last quarter.

Citi analysts said the deterioration in asset quality could be seen not just in earnings, but in the company’s revised guidance.

“While expectations were already low at the start of the report, we believe the magnitude of the failure will be disappointing, and the continued trend of deteriorating asset quality reduces visibility into future results,” Citi said. .

($1 = 5.1440 reais)

Reporting by Peter Frontini; Editing by Aurora Ellis and Christopher Cushing

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