Bradesco prepares for rising bad loans in 2023

Brazilian lender set aside billions of reais in the fourth quarter, Chief Executive Officer Octavio de Lazari Jr. said.

The bank’s earnings were hit hard in the final quarter of last year by the provisions, including for its lending to failing retailers Americanas SA. The bank said that its net income for the period fell to €1.4 billion reais (R$), from R$3.2 billion a year earlier.

Bradesco has the largest exposure in terms of total lending to Americanas, which was granted protection from creditors in January, at about R$4.8 billion. The bank set aside R$ 14.9 billion in the fourth quarter to cover bad loans, up from R$ 4.3 billion a year earlier. The bank said it had provisioned for 100% of an operation involving a large corporate client.

Americanas is a one-off case and its situation doesn’t apply to other big companies in Bradesco’s credit portfolio, Mr. de Lazari said. Instead, the bank expects its loan delinquency ratio to continue to rise in the first part of this year, from 4.3% at the end of the fourth quarter, mostly because of its low-income individual and small- and micro-business segments, Mr. de Lazari said.

After boosting provisions in the fourth quarter, the bank expects to set aside between R$ 36.5 billion and R$39.5 billion this year for bad loans, leaving the bank with sufficient funds to handle the expected increase in delinquency, according to the CEO.

“We have adequate provisions. It’s not something that worries us,” Mr. de Lazari said.

With the provisions in the fourth quarter, including the money set aside for the large corporate client, the bank’s results in 2023 should be affected more by other clients in its portfolio and not by the retailer, said Renan Manda and Matheus Guimarães, analysts for XP Investimentos, in a research note.

“Its exposure to Americanas is now fully provisioned, thus eliminating potential impacts from this case in 2023,” the XP Investimentos analysts said.

Original Story: Market Watch | Jeffrey T. Lewis
Photo: Bradesco caption site
Edition: Prime Yield