Brazil Bank Boosts Provisions as Defaults Soar
World Economy

Brazil Bank Boosts Provisions as Defaults Soar

Itau Unibanco Holding SA took advantage of robust third-quarter results to boost loan-loss provisions, as Brazil’s largest bank by market value wrestles with the impact of the country’s deepest recession in a quarter century.
In the third quarter, Itau used gains in the value of deferred tax assets to boost certain reserves while setting aside more money to cover loan losses. In a securities filing on Tuesday, Itau said the decision had to do with a more challenging economic outlook, Reuters reported.
Chief Executive Officer Roberto Setubal boosted recurring provisions by 6.2%, the fastest pace in a year, as consumer delinquencies soared. Those provisions rose to 4.65 billion reais ($1.2 billion), while non-recurring excess and generic reserves were increased by 2.79 billion reais last quarter. Trends in bad debt provisions remain the biggest issue for Brazilian banks because of the recession, which could turn out to be the longest since the 1930s. This, coupled with fallout from a corruption scandal at state firms, could weigh down industry profits.
The additional provisions pushed Itau’s coverage ratio, or a gauge of reserves for loan losses, to 214%–above peers–and its non-performing loans buffer to 230 basis points, from 138 points three months earlier.
“Itau is building a fortress balance sheet that should underpin earnings outlook for the bank,” Philip Finch, a strategist with UBS Securities in London, said.
Even though it raised provisions, which help banks cushion their balance sheets from loan-related losses, Itau beat profit estimates. It also increased lending even though taxes jumped, expenses climbed faster than expected and loan repricing showed signs of stagnating.
Recurring net income, or profit before one-time items, at Sao Paulo-based Itau came in at 6.11 billion reais ($1.57 billion) last quarter, beating a Reuters poll estimate of 5.76 billion reais. On an annual basis, recurring profit rose 12.1% and fell 0.3% on a quarterly basis.

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