With its focus on SME’s, Brazilian Bradesco banc is well set to grow with the country’s economy, according to Euromoney.
Third-quarter 2018 results back up this optimism. The bank’s earnings grew 6% during the quarter and 14% year on year, which was the strongest bottom line expansion among the large banks.
Following the announcement of the results, Bradesco’s president, Octavio de Lazari, predicted further growth next year. «We have the appetite to continue to grow our credit portfolio and to grow a lot,» he said – though he declined to give any specific forecasts for either credit or earnings growth in 2019.
Perhaps more importantly, the bank also had the best net interest margin versus non-performing loan performance ratio in the market, with core net interest income increasing by 4% while NPLs (90 days) fell by 30 basis points. In the bank’s critical small and medium-sized enterprise segment (to which it has a larger exposure than its competitors), it managed to cut NPLs by an impressive 74bp in the quarter – with corporate NPLs stubborn due to three specific large defaults.
The performance in SMEs is encouraging for the bank. The loan portfolio to this sector increased by 3.6% in the quarter (corporates by just 0.4% and the individual’s segment by 1.8% quarter on quarter).
Bradesco’s overall loan portfolio is tilted more to the higher-returning segments than its competitors, which leads analysts to argue that it is best positioned to grow with the Brazilian economy.
BTG Pactual bank analyst, Eduardo Rosman, hailed the third quarter results as showing that the turnaround, “something investors have been waiting for some time”, has arrived.
«The big improvement in NPLs and particularly the better dynamics seen in the SME business line make us more positive on the prospects for the bank,» Rosman wrote in his third-quarter results report to clients. «In a scenario where Brazil’s GDP recovers, we tend to believe Bradesco’s ROE has room to expand and reduce the gap to its main competitor Itaú. It could also get back the number two ROE position recently lost to Santander.»
Bradesco’s ROE was 19.1% in the third quarter and Carlos Firetti, market relations director at Bradesco, thinks this level will more likely be a new floor rather than a peak. «We believe we have reached a new level of ROEs and we still focus for expanding,» he says. «We believe that the economy, the improvement in the economy, the opportunities that will arise from it, with more loan growth, and also the maturity of many of our initiatives, will allow us to actually look for higher profitability levels.»
Original Story: Euromoney
Photo: Bradesco
Edition: Prime Yield