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(Adds new 2021 outlook, financial details)
By Carolina Mandl
SAO PAULO, Aug 4 (Reuters) - State-controlled lender Banco do Brasil SA on Wednesday posted a 52.2% rise in second-quarter profit and announced its annual net income is likely to be higher than expected as losses stemming from the pandemic are not materializing.
Recurring net income, which excludes one-off items, came in at 5.039 billion reais ($975 million), as loan-loss provisions dropped 49.8% from a year earlier, although they grew by 13.8% compared with the first quarter.
The bank also revised its outlook for 2021 profit to up to 20 billion reais from 19 billion reais, as provisions for bad loans will be lower by up to 2 billion reais. Still, net interest income is likely to grow at most 4%, while earlier this year Banco do Brasil was predicting a rise of up to 6.5%.
Loan default ratio remained roughly stable at 1.9%.
Banco do Brasil posted net interest income, earnings from loans minus deposit costs, of 14.4 billion reais, up 0.6% from a year earlier. The bank said it faced higher funding costs as benchmark interest rates went up.
The bank's loan book grew by 1.3% in the quarter, boosted by consumer lending.
Return on equity, a gauge of profitability, was 14.4%, slightly down from the previous quarter.
In May, Chief Executive Fausto Ribeiro, who took the helm of the bank in April, said President Jair Bolsonaro had asked him to work to increase the state-controlled lender's profitability. ($1 = 5.1685 reais) (Reporting by Carolina Mandl in Sao Paulo Editing by Leslie Adler and Matthew Lewis)