Brazilian lender Banco Bradesco reported higher-than-expected third-quarter recurring net income, despite a spike in loan-loss provisions amid the coronavirus pandemic.

Brazil’s second largest private-sector lender posted net income of 5.031 billion reais ($894.56 million), roughly 15% above analysts’ consensus estimate according to Refinitiv, but down 23.1% from a year earlier.

Bradesco set aside 5.588 billion reais for bad loans, up 67.5% from a year earlier, but down 37.1% from the previous quarter. That includes 2.6 billion reais in extraordinary provisions related to potential losses stemming from the coronavirus crisis.

“The results shows the first signs of a return to normality,” Bradesco Chief Executive Octavio de Lazari said in a statement.

As the bank gave grace periods of up to 180 days to help clients weather the economic crisis stemming from the coronavirus pandemic, its 90-day default ratio went down 0.7 of a percentage point to 2.3%.

The bank said it conceded grace periods to 73 billion reais in loans.

Its loan books rose only 0.5% in the quarter, mainly on consumer lending, although Brazil is set for a recession and unemployment is at the highest in eight years.

The bank also showed it has put into action some cost-cutting measures as they went down 5.7% from a year earlier, but were up in the quarter.

Return on equity was at 15.2%, recovering from the second quarter, when the bank decided to set aside extraordinary provisions to face the coronavirus pandemic.

Original Story: Reuters | Staff 
Photo: Bradesco Linked In
Edition: Prime Yield

Mortgage loans with resources from the Brazilian Savings and Loan System (SBPE) reached 12.9 billion reais ($2.29 billion) in September, up 70.1% over the same period in 2019, reaching a record, mortgage lender association Abecip reported.

From January to September, loans from the system to finance the purchase and construction of real estate advanced 44% versus the same period a year earlier, to 78.8 billion reais, already exceeding the result of all of last year. 

Original Story: Reuters | Aluisio Alves 
Photo: Photo by Bruno Neves in FreeImages.com
Edition: Prime Yield

Banco do Brasil SA’s profit declined in Q3 from a year earlier as the Brazilian lender again increased provisions to prepare for an expected rise in bad loans related to the economic impact of the coronavirus pandemic.

The state-controlled bank reported net income of 3.1 billion reais, the equivalent of $547 million, in the period, a decline of 27.5% from the Q3 of 2019, while adjusted net income fell 23.3% to 3.5 billion reais.

Net interest income rose 3.4% from a year earlier to 14 billion reais. Earnings per share fell to 1.06 reais in the quarter, from 1.49 reais a year earlier.

Banco do Brasil and other Brazilian banks have been boosting provisions in the wake of the pandemic, which slammed economic activity in March and April. Growth in some areas, such as industrial production and retail sales, resumed in May and has continued, though only in recent months has there been improvement on a year-over-year basis.

Total provisions rose by 40.5% from a year earlier, to 5.5 billion reais, while provisions for credit risks rose 30.5% in the period to 6.6 billion reais, the bank said.

The recovery in activity has already begun to slow, with a deceleration in growth in the past few months, and that trend is expected to continue through at least the end of this year. But Banco do Brazil and other lenders are showing quarter-over-quarter improvement as the economy has heated up.

Government aid payments to Brazil’s poorest residents, along with other stimulus programs, helped the recovery by boosting spending on necessities, the bank said. The weak real and strong demand from China pushed the price of the country’s agricultural commodities higher in the local currency, helping the economy in farming regions of Brazil, it said.

Original Story: Down Jones News | Jeffrey T.Lewis
Photo: Banco do Brasil website
Edition: Prime Yield 

Loan defaults in Brazil rose in April for a fourth month in a row, official figures showed, something not seen since the 2015-16 recession and a sign of what could lie in store as the economy heads for another steep downturn this year.

The rise in the 90-day default ratio to 4% from 3.8% the month before marked the highest level since July last year, according to central bank figures, as the coronavirus crisis tightened its grip on Latin America’s largest economy.

It has risen every month this year since hitting 3.7% in December, the lowest since the central bank’s data series began in 2011.

An even more forensic look at the figures show that the actual 3.99% default ratio in April was the highest since October 2018, when it was 4.08%.

Fernando Rocha, head of statistics at the central bank, said the rise in defaults is correlated with the economic cycle. He declined to give figures but said defaults for individuals will likely continue to rise in the coming months, pointing out that companies have better credit guarantee protections.

The government has created a Treasury program guaranteeing billions of reais of credit to micro and small companies, known as ‘Pronampe’, but the initiative is having teething troubles and has still to properly take effect.

Productivity and Competition Secretary Carlos da Costa said this week that credit will be made available “soon”.

The central bank figures also showed that lending spreads shrank to 26.2 percentage points in April from 27.6 percentage points the month before, the narrowest spread since December 2014.

The amount of outstanding loans in Brazil held steady at 3.59 trillion reais ($670 billion) in April, the central bank said.

Original Story: Reuters | Jamie McGeever 
Photo: Photo by Bruno Neves from FreeImages.com
Edition: Prime Yield

US direct private lender Kennedy Funding closed a $2.633 million loan to BRMF LLC of Brazil.  Proceeds of the loan will be used for working capital toward the last phase of development for Recanto das Flores Urbamais, a condominium community located in Feira de Santana, a city in eastern Brazil.

Recanto das Flores Urbamais is a residential development situated on 416.54 acres in the city’s Nova Esperança neighborhood, located in the city’s residential Peripheral Region. The community is made up of 250 low-income condominiums, and the borrowers plan to develop an additional 75 homes on an undeveloped tract as part of a plan to expand the new community. Approximately 70% of units have been sold so far.

“It’s virtually unheard of to close a land loan abroad, let alone one in a region as complicated and fragile as Brazil,” said Kevin Wolfer, CEO and president, Kennedy Funding. “It may have appeared on paper that we had all factors working against us, but thanks to our experience in South America’s real estate market, we were able to close and get the borrower the funding necessary to start construction.”

“Conventional lenders only look at liquid assets when making a loan, but we look beyond the current value of the land,” Wolfer said. “We can review the borrower’s plans and follow a property’s trajectory from raw land to a fully built and successful development.”

As the second-most populous city in one of Brazil’s largest states, Bahia, Feira de Santana has a bustling economy and a growing population. The city has the third-largest GDP in the state and is home to many businesses and unique festivals that bring tourists to the city year-round.

“Bahia is growing in both population and economy, and is home to nearly 15 million people and some of the largest agricultural producers in cattle, sheep, cocoa, coconuts, and other crops and animals,” Wolfer said. “Low-income housing is a necessity as Feira de Santana, one of the biggest cities in the region, continues to grow and prosper.”

According to Wolfer, Kennedy Funding was singled out by the borrower’s broker, João Costa, president of Savel Capital Partners, Lisbon, Portugal, who searched for a U.S. lender that understood the complications and intricacies of working within Brazil’s legal, economic, and political intricacies.

Original Story: Market Watch | PR Kennedy Funding 
Photo: Photo by Marcel Krings from FreeImages.com
Edition: Prime Yield

Brazil’s largest lender, Itau Unibanco Holding SA, posted weaker-than-expected quarterly earnings after setting aside r$10.1 bn ($1.82 billion) in reserves in anticipation of a potential wave of coronavirus-led loan defaults.

Itau Unibanco’s first-quarter recurring net income, which excludes one-off items, fell 43.1% from a year earlier to R$3.912 bn ($706 million), and below an estimate by Refinitiv of r$6.242 bn ($1.13 billion).

The Sao Paulo-based bank’s loan-loss provisions almost tripled from a year earlier, according to a securities filing.

The bank’s management said in a statement that the outlook for both companies and consumers had deteriorated since mid-March, when the coronavirus outbreak started gaining momentum in Brazil.

Profit was also hit by lower trading gains and hedging, which came in down 38.9% year-on-year, at 760 million reais.

Itau’s return on equity fell to 12.8%, its lowest in at least the past five years. While Itau is normally the top ranked among Brazilian lenders according to the measure of profitability, it fell behind Santander Brasil in the latest quarter, as its rival decided to set aside less money for expected loan losses.

Itau’s core capital ratio also dropped to 10.3% from 13.2% in the previous quarter.

Its loan book was mainly boosted by corporate loans in the first quarter, as big companies have sought credit to strengthen their cash positions to help weather impacts stemming from the coronavirus pandemic.

The lender’s loan book grew by 8.9% from December, but excluding exchange rate fluctuation, it went up 2.7% in the quarter.

Its 90-day loan default rate was roughly stable at 3.1% in the first quarter.

In a move to help consumers and small companies cope with the coronavirus crisis, Itau is allowing clients to defer debt payments for up to six years.

Original Story: Reuters | Carolina Mandl 
Photo: Itaú website
Edition: Prime Yield

Banco Bradesco SA is setting aside R$ 2.7 bn ($506.1 million) for expected COVID 19-related loan losses and may provision more in the coming months amid what its chief executive called a more severe crisis than previous ones.

“Our goal was to preserve the bank’s solidity to face future challenges,” Octavio de Lazari told. “This crisis now is more severe than the ones Brazil faced in 2008 and 2016,” he added, referring to the financial crisis and a severe domestic recession triggered by a bust in commodities prices.

Bradesco posted recurring net income, which excludes one-off items, of R$3.753 bn, down nearly 40% from a year earlier and below a Refinitiv estimate of R$5.975 bn.

Return on equity, meanwhile, dropped 9 percentage points from the previous quarter to 11.7% as a result of the higher provisions.

Preferred shares in Brazil’s second largest private-sector lender were down almost 6% in mid-morning trading.

“We see the result as negative due to the faster-than-expected deterioration in asset quality indicators,” analysts at Credit Suisse said in a note to clients, adding that provisions are likely to keep an upward trend.

The bank’s loan-loss provisions soared 86% from a year earlier to R$6.708 bn in expectation of higher loan delinquencies by consumers and companies struggling with the economic effects of the pandemic. Now it has a buffer of R$5.1 bn to face an adverse economic scenario.

Lazari said Bradesco is likely to give clients another 60-day debt payment forgiveness extension. Earlier in March, the bank had already cleared the way for borrowers to postpone instalment payments for two months.

Along with increasing provisions, the bank is also trying to tackle the crisis through cost-cutting. Bradesco intends to shut 78 more branches than it had predicted in the beginning of the year, totalling 378 units.

The lender scrapped its 2020 results outlook because of coronavirus-related uncertainty, and Lazari said he could not predict when the economy might recover.

The COVID-19 outbreak had only minor impact in Brazil until mid-March, so its impact on first-quarter banking operations has been limited.

Bradesco’s loan book grew by 5.1% from December, mainly through corporate loans, as large companies looked to bolster balance sheets ahead of an expected deep recession.

Lazari said that since mid-March the bank had extended R$57 bn in new loans, but that demand for credit was now slowing down.

Fee income rose 2.6% from a year earlier, on checking account and brokerage fees.

Original Story: Reuters |Carolina Mandl 
Photo: Bradesco website
Edition: Prime Yield

Banco do Brasil is much better placed to weather the economic storm caused by the global coronavirus pandemic than it was during the Brazilian recession of 2016, according to the bank’s CFO, Carlos Hamilton Vasconcelos Araújo.  

He told Euromoney that he expects the bank to be less negatively affected than Brazil’s large private-sector banks. 

«Our credit portfolio is more defensive than the banking industry average,» he says. «When compared to the system, we don’t expect the same impact in our portfolio.»

Hamilton says that it is still «too early to say how much NPLs [non-performing loans] could increase», but he points out that Banco do Brasil has low corporate exposure to the worst hit industry sectors. Lending to airlines and tourism companies is 0.5% and 0.04% of the total respectively.

The bank has also been skewing its corporate book towards quality agribusiness credits in recent years – and that is a sector that is expected to emerge relatively unscathed once the threat from Covid-19 recedes.

 «We have been closely monitoring the situation of the companies and we are ready to help in any way necessary, » says Hamilton. «We saw a reduction in concentration in specific segments and companies in the last two years due to the migration to capital markets. Today our portfolio is less concentrated than it was five years ago.» 

He says the bank is ready to support clients’ need for liquidity while corporate financing conditions normalize in the country: «It’s hard to be precise when the capital market will be opened again, but it is important to continue supporting the companies with the traditional credit until the uncertainties reduce and the environment becomes more beneficial.»

Hamilton is also confident about the quality of the bank’s SME book. «We have a good relationship with our SME clients,» he says. «More than 80% of them have more than five years of relationship with the bank… [and] they are companies with a better profile, since they have already survived the last crisis.»

Hamilton also points to the increased quality of its consumer portfolio as evidence for his forecast that the bank should suffer a lower-than-industry increase in delinquencies.

«Almost 90% of our individuals portfolio are civil servants, clients that have job stability… and one-third is payroll loans.»

According to BTG Pactual’s financial institution analyst Eduardo Rosman: «Only 5% [of Banco do Brasil’s consumer loan portfolio] is in higher risk personal credit» and he believes that the messaging coming out of the bank is «positive».

Proactive measures

However, despite the relative advantages Banco do Brasil had going into the crisis, Hamilton says it has been implementing the framework adopted by Febraban (Brazilian Federation of Banks) that gives small and medium-sized enterprises and individuals the option to extend installments falling due in the next 60 days.

«We have given SMEs the option to postpone working capital lines at this moment,» says Hamilton. «Customers can also adjust their financial commitments, through loans renegotiation, with a grace period for payment of the first installment between 60 and 180 days, depending on the loan line, and the payment term lengthening. This renegotiation process can also be contracted through digital channels.» 

Hamilton believes these proactive measures will limit the bank’s increase in NPLs, though «it is a fact that there might be some increase.»

As with NPLs, Hamilton says it is “too early” to evaluate the need to increase provisions, but he is confident they will be lower than the bank suffered in the last crisis.  

«We made a preventive reinforcement in provisions in the fourth quarter of 2019, mainly for the low-income mortgage segment, which should be one of the most affected in this scenario,» he says.

 «In addition, the midpoint of our guidance 2020 indicates a reduction of about 20% in net provisions, so even if there is a need to reinforce the provision throughout the year, we have room to absorb a certain volume». 

 «The bank always adopted a forward vision perspective on risk management and has a very prudent view on provisions. Certainly, there will be impacts going forward, and there is space for making additional provisions if necessary.» 

Hamilton notes that the country’s solid banking system is a positive during a crisis, but he sees some risk from importing financial stress from abroad: «Despite great efforts by governments and central banks to guarantee liquidity to the market, the magnitude of the economic shock has the potential to spill over into the financial system».  

«Therefore, we list mainly the risk of a significant deterioration in the balance sheet of companies in the developed countries, which could fail to honour their debts. It should be noted that the high level of corporate leverage, in global terms, was already a relevant point of concern recently.»

He adds: «Therefore, an environment of sharp decline in activity, collapsing corporate revenues, could lead to a massive increase in corporate defaults on bank loans and debt securities, triggering a new global financial crisis». 

«It’s important to mention that the Brazilian companies are much less leveraged than those from the developed countries and, in particular, US and European companies.»

Original Story:Euromoney | Rob Dwyer 
Photo: Site Banco Central do Brasil
Edition: Prime Yield

A Brazilian federal judge ordered banks to suspend all payments due on payroll loans extended to retirees for four months, citing increased medical expenses due to the coronavirus pandemic.

Judge Renato Coelho Borelli said retirees should have a four-month grace period on loan payments. The decision may be appealed.

The judge also ruled that banks should not pay dividends above the minimum required by law, duplicating a measure already taken by Brazil’s central bank. 

Original Story: Reuters | Tatiana Bautzer
Photo: Photo by Bruno Neves for FreeImages.com
Edition: Prime Yield

Government loans for Brazilian airlines battered by the coronavirus crisis would only be ready in May, and not later this month as some had hoped, two sources familiar with the matter told Reuters.

The loans have been publicly announced and are being coordinated by Brazil’s state development bank BNDES. Gol Linhas Aereas Inteligentes and Azul SA have confirmed the talks and suggested loans of around 3 billion reais ($569.10 million) per carrier.

The sources, speaking on condition of anonymity, said LATAM Airlines has also asked for help from BNDES. Gol, Azul and LATAM control virtually all of Brazil’s commercial passenger flights.

The sources added that the amounts requested by the airlines were higher than expected. BNDES has decided it will not rescue the airlines alone, the sources said, and is bringing private banks, debtholders and aircraft leasing companies to the table.

«We have received positive signs from the banks to renegotiate debts,» one of the sources said.

Airlines around Latin America are increasing pressure on their governments for state aid to weather the coronavirus crisis after the United States approved a $25 billion package for its national carriers, much of which is money that will not have to be repaid.

In order to receive the aid in Brazil, BNDES is requesting that airlines cut executive bonuses and investments as well as suspend dividends, the sources said.

The carriers «cannot assume that they will come out with no scratches or without some sacrifices from a crisis like this,» the second source said.

Original Story: The New York Times | Rodrigo Viga Gaier (Reuters) 
Photo: Photo by Cesar Fermino for FreeImages.com
Edition: Prime Yield

Brazilian consumer price inflation, as measured by the IPCA index, rose 0.25% in February, government statistics agency IBGE said, more than the 0.15% economists in a Reuters poll had expected.

Prices rose 4.01% in the 12 months through February, also more than the median forecast of 3.90%. 

Original Story: Reuters | Jamie McGeever
Photo: Photo by BrunoNeves in FreeImages.com
Edition: Prime Yield
 

Brazil’s central bank announced it will sell dollars in the spot market for a second day to support the real amid a rout in global assets.

After sold about $3.5 billion in two auctions on March 10th, the first such intervention this year, Policy makers decided to offer up to $2 billion in a spot auction on the next day. 

The central bank had been stepping into the foreign exchange markets only via swap auctions, of which it sold $9.5 billion in February in a bid to contain the volatility.

The change comes as the collapse in global markets triggered by a selloff in crude added pressure to the real, which was already the world’s worst currency. The real is down 15% this year as record low rates diminish its carry appeal and as disappointing economic data casts doubt on Brazil’s recovery.

On the morning of March 9^th, the central bank pledged to continue intervening in the foreign exchange market with all instruments available and for as long as needed. The bank’s Monetary Policy Director Bruno Serra refrained from announcing a program to systematically sell dollars from Brazil’s foreign reserves, but said this doesn’t mean the central bank is stepping out of the market any time soon.

Original Story: Bloomberg |Luisa Leite 
Photo: Site Banco Central do Brasil
Edition: Prime Yield

Brazil’s has just announced it lowered its 2020 gross domestic product growth forecast to 2.1% from 2.4%, citing the economic impact from the global coronavirus outbreak.

It also lowered its 2020 inflation outlook to 3.12% from 3.62%, and maintained its 2021, 2022, 2023 GDP growth forecasts at 2.5%, the Economy Ministry said.

Original Story: Reuters | Marcela Ayres/ Jamie McGeever 
Photo: Photo by Cesar Fermino in FreeImages.com
Edition: Prime Yield

In the midst of the rate war in Brazil’s mortgage market, Santander announced the raising of the financing limit to 90% of the property’s value, up from the previous 80% limit.

In the midst of the real estate financing rate dispute in the country, the bank chose to resort to a new weapon: the option of providing a lower down payment, thus becoming the only institution in Brazil to work with a minimum ten percent down payment.

The new ceiling is applied to the Constant Repayment System (SAC).

Original Story: The Rio Times|Richard Mann 
Photo: Photo by Svilen Milev /FreeImages.com
Edition: Prime Yield

Tokio Marine Holdings, Inc. has announced the execution of a definitive agreement between its subsidiary, Tokio Marine Seguradora S.A., and Caixa Seguridade Participações S.A, an insurance holding unit of Caixa Econômica Federal, to establish a joint venture insurer to underwrite mortgage and homeowners insurance.

Caixa Econômica Federal is a Brazilian state-owned bank and leading institution on the Brazilian mortgage industry, holding more than a 70% market share in the country’s mortgage loan market.

The definitive agreement between the two subsidiaries is expected to further diversify the operations of Tokio Marine Holdings through the expansion into the mortgage and homeowners sectors of the marketplace, both of which are growing. Tokio Marine Seguradora has been expanding its operations and at the same time improving its profitability and is now ranked 5th in terms of market share in the Brazilian auto market.

The establishment of the joint venture with Caixa is a continuation of Tokio Marine Group’s ambitions to expand in both mature and emerging markets through acquisitions and partnerships.

In terms of the structure of the joint venture, Caixa is set to establish a new insurance company and allocate new shares to Tokio Marine Seguradora equivalent to 50.1% of the insurer’s voting shares upon a capital contribution of approximately US$ 370 million (R$ 1.52 Bn).

The company name is yet to be determined as is the Chief Executive Officer (CEO). However, an overview of the joint venture at this stage reveals that its head office is expected to be in São Paulo, Brazil.

Original Story: Reinsurance News | Luke Gallin
Photo: Tokio Marine Seguradora
Edition: Prime Yield

Brazilian state lender Caixa Economica Federal has chosen the bank syndicate that will manage the initial public offering (IPO) of its insurance unit, Reuters said.

According to the three sources with knowledge of the matter listened by the news agency, Morgan Stanley will lead a 10-bank syndicate including the investment banking units of Banco Bradesco SA, Itau Unibanco Holding SA, Banco Plural, Banco BTG Pactual, Banco do Brasil SA, Credit Suisse AG, Banco Santander Brasil SA, Bank of America and Caixa Economica Federal.

Insurance unit Caixa Seguridade will be listed in Brazil, although the banks expect to market the offering in the United States also. The banks expect to value it at around R$60 Bn ($14.77Bn), the sources said.

Caixa Economica Federal did not reply to a request for immediate comment.

Caixa plans to sell a stake of about R$10 Bn [$2.5 billion] in the insurer. Caixa Seguridade will not raise cash by issuing new shares, the sources said.

Caixa CEO Pedro Guimaraes wants an IPO in the short term, in March or April, but Caixa Seguridade still needs to sign agreements with private insurers to sell different kinds of insurance to its clients.

On January 5^th, Caixa announced an agreement with Japan’s Tokio Marine to sell home insurance to its clients. Tokio Marine will pay R$ 1.5 Bn to Caixa.

Caixa Seguridade posted a net income of R$1.2 Bn for the first nine months of 2019.

Original Story: Insurance Jornal |  Carolina Mandl 
Photo: Caixa Economica Federal
Edition: Prime Yield