Mon Jul 22, 2013 6:28am EDT
* Recurring profit at 2.978 bln reais misses estimates
* Guidance cut signals cautious stance on economy
* Return on equity slumps to lowest in over four years
By Guillermo Parra-Bernal
SAO PAULO, July 22 (Reuters) - Banco Bradesco SA on Monday cut projections for lending and interest income growth for this year as an economic slowdown in Brazil that is extending into a third year led the nation's No. 2 private-sector bank to miss second-quarter profit estimates.
The Osasco, Brazil-based bank said in a statement its loan book is expected to grow between 11 percent and 15 percent this year, down from a prior range of 13 percent to 17 percent. Bradesco also signaled efforts to boost revenue in areas other than credit.
The revision underscores growing caution among Bradesco and other private-sector banks as Brazil enters a third year of below-trend economic growth.
Bradesco's second-quarter results, which fell short of expectations, may reinforce the view that profitability trends among Brazil's banks remain fragile, with performance increasingly hinging on expense cuts as credit growth stagnates.
Net income excluding one-time items, a widely used gauge of earnings known as recurring profit, totaled 2.978 billion reais ($1.33 billion), compared with the average 3.021 billion reais profit estimate in a Thomson Reuters poll of eight analysts.
Recurring profit rose 1.2 percent in a quarter-on-quarter basis as a 21 percent surge in insurance revenue and an 8.3 percent gain in fee income helped offset sinking trading-related income, lower interest income and stable bad-loan provisions.
Compared with the same period a year earlier, profit climbed 3.9 percent.
Management plans to discuss second-quarter results on a conference call later in the day.
The second-quarter profit miss came mostly in the wake of a slump in gains from trading of securities such as bonds and stocks that totaled 18 million reais - the lowest quarterly level for the item since the start of 2009. The so-called trading-related income line had gains of 197 million reais in the first quarter, and of 516 million reais a year earlier.
INTEREST INCOME, MARGINS
Interest income, or revenue from lending-related activities, fell to the lowest level in six quarters, while loan disbursements showed a 2.8 percent expansion - slightly above the 2.6 percent estimate in the Reuters poll.
Bradesco, led by Chief Executive Officer Luiz Carlos Trabuco, trimmed estimates for interest income growth this year to a range between 4 percent and 8 percent, from a prior range between 7 percent and 11 percent.
The central bank's decision to raise the benchmark interest Selic rate twice in the quarter probably helped Bradesco's net interest margin - or the average rate earned on loans - to remain stable on a sequential basis after four straight quarters of declines. The indicator, known as NIM among analysts, stood at 7.2 percent in the second quarter.
For over a year, Bradesco has reined in disbursements in riskier segments like auto loans and focused on mortgages and paycheck-deductible lending -- two segments that charge lower rates but are less likely to default.
Trabuco kept expenses in check, highlighting the industry's efforts to bolster profitability through cost efficiency.
Despite those efforts, return on equity - a measure of profitability in the banking industry known as ROE - fell to 18.8 percent on a recurring basis. While the result beat the poll's forecast of 17.4 percent, ROE slipped to its lowest level since at least the end of 2008.
Bradesco's loan book ended the second quarter at 402.52 billion reais, up 2.6 percent on a quarterly basis. On an annual basis, lending rose 10.1 percent, below the lender's revamped guidance for credit growth between 11 percent and 15 percent this year.
Loan defaults for 90 days or more, the industry's benchmark for delinquencies, posted a steeper-than-expected decline in the second quarter to 3.7 percent of outstanding credit. In the first quarter, the so-called default ratio stood at 4 percent.
Analysts in the poll expected the default ratio at 3.9 percent at the end of June.
In spite of the lower loan delinquencies, Bradesco set aside 3.09 billion reais in provisions for bad loans, or 0.5 percent less than in the prior quarter, a cautious sign over the outlook for Brazil's economy in coming months.
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