By Guillermo Parra-Bernal and Natalia Gómez
SAO PAULO, Oct 21 (Reuters) - Banco Bradesco SA, Brazil'sNo. 2 private-sector lender, on Monday trimmed its projectionsfor interest income growth this year for a second straightquarter to account for sagging demand for new credit in LatinAmerica's economy.
The Osasco, Brazil-based bank said in a statement that itexpected net interest income, or revenue exclusively fromlending activities, to rise this year by 1 percent to 3 percent.In the second quarter, it had cut its forecast for the gauge toa range of 4 percent to 8 percent, citing lackluster growth inits loan book.
The latest estimate came even as the bank's third-quarterprofit beat expectations, partly because of a healthier topline. Earnings before one-time items, or recurring profit,totaled 3.082 billion reais ($1.42 billion), above the 3.066billion reais estimate from a Thomson Reuters poll of sevenanalysts.
Lower revenue growth highlights the challenge facing ChiefExecutive Officer Luiz Carlos Trabuco, who for the past year hasreined in lending to riskier segments like auto loans andfocused on mortgages and paycheck-deductible credit to protectprofits. Since late 2011, Bradesco and private-sector rivalshave struggled with intense competition from state-run banksthat led to lower borrowing costs across the banking system.
Chief Financial Officer Luiz Carlos Angelotti said thedecision had nothing to do with the impact of losses in thevalue of Bradesco's government bond holdings since April. In thequarter, the bank partially reversed a drop in shareholders'equity incurred during the second quarter caused by a spike inyields on local debt notes.
"We had to address the issue of weak credit market trends,since we don't expect our loan book this year to grow beyond thebottom of our guidance" of 11 percent to 15 percent, Angelottisaid in a conference call.
Bradesco led declines in Brazil's banking shares on concernthe bank's slight earnings beat and guidance cut may presageweak results for Itaú Unibanco Holding SA and BancoSantander Brasil SA in coming days. Preferred sharesof Bradesco shed as much as 1.9 percent on Monday.
Santander reports earnings on Thursday, while Itaú publishesits own on Oct. 29.
"Results were slightly disappointing," Philip Finch, aLondon-based strategist with UBS Securities, said in a note toclients.
Some analysts bet that recent interest-rate hikes by thecentral bank will help bolster revenue. Policymakers have raisedthe benchmark Selic overnight lending rate five times sinceApril from a record low, slightly widening spreads, or thedifference between the interest rate charged on a loan and thelender's fund-raising costs.
In the 12 months through Sept. 30, Bradesco's net interestincome rose 0.2 percent to 10.62 billion reais. But the bank'sannualized net interest margin, a measure of the averageinterest rate charged on all loans, slipped to 7 percent in thethird quarter from 7.2 percent in the prior three months.
"Rate hikes still seem not to be providing benefits, asmargins continued to decline driven by the change in the loanmix," said Carlos Macedo, an analyst with Goldman Sachs Group inSão Paulo.
At Bradesco, revenue rose slightly on a quarterly basisafter trading-related income rose six-fold. The surge in bondyields drove both this income down and shareholders' equitysharply.
To compensate for flagging credit demand, CEO Trabucofocused on expense controls and efforts to boost revenue frominvestment-banking, insurance and financial services. Butdespite those efforts, return on equity, a measure of how wellbanks allocate shareholders' money, fell to 18.4 percent on arecurring basis from 18.8 percent in the prior quarter.
While return on equity came in slightly above the poll'sforecast of 18.3 percent, it hit its lowest level since at leastthe end of 2008.
Management cut provisions on bad loans for the fifthstraight quarter as loan delinquencies fell, especially inconsumer lending. The reduction in provisions, which directlyboosts earnings by freeing up capital, was 7 percent on aquarter-on-quarter basis and 13 percent from a year earlier.
Loan defaults for 90 days or more, the industry's benchmarkfor delinquencies, slipped in the third quarter to 3.6 percentof outstanding credit from 3.7 percent in the second quarter.Analysts had expected the ratio to remain stable.
Bradesco's loan book reached 412.56 billion reais at the endof June, up 2.5 percent on a quarterly basis. On an annualbasis, lending rose 11 percent, at the bottom of this year'sforecast for credit growth between 11 percent and 15 percent.
- Banco Bradesco
- net interest income