Brazil's biggest banks show readiness to grow and earn more

The four biggest banks in Brazil saw their net income increase in the first quarter as improving loan book quality allowed them to reduce provisions set aside for bad loans.

With Latin America's biggest economy expected to gain strength this year, the outlook for these banks is positive both in terms of earnings generation and loan expansion.

State-run Banco do Brasil saw its net profit rise12.5% in the first quarter to 2.75bn reais (US$774mn) with the help of lower loan loss provisions.

Loan loss provisions were down 18.8%, as the bank's non-performing loan ratio (NPL) decreased to 3.65% at the end of March from 3.89% a year before.

The reduction in provision-related expanses helped Banco do Brasil offset a fall in revenue from its lending operations. The loan portfolio contracted 1.3% in the first quarter to 625bn reais, with the corporate loan book leading the fall at -7.3%.

"At this point, we are focused on loans with better quality in order to reduce provisions," said the bank's CEO, Paulo Caffarelli, at a press conference when asked by BNamericas about the future growth strategy.

Banco do Brasil's loan growth will gradually pick up as the economic recovery gains traction, he added.

After two years of severe recession, Brazil's economy expanded 1% in 2017. The finance ministry expects growth to accelerate to 3% this year.

Private sector giant Itaú Unibanco saw its results fueled by the combination of loan growth and lower provisions.

Itaú's Q1 net earnings rose 6.28bn reais from 6.05bn in the year-ago quarter, while seeing its lending advance 2.4% and provisions fall 23.8%.

Itaú's NPL ratio decreased to 3.1% at the end of the quarter from 3.4% a year before.

"Itaú delivered a positive quarterly result," said banking analysts at local investment firm BB Investimentos. "We maintain the positive view on the name due to the strong performance and the higher profitability," said the analysts, who kept their outperform recommendation on the bank's shares.

The Brazilian unit of Spain's largest lender, Banco Santander, reported a strong net income increase of 25.4% in the first quarter, totaling 2.86bn reais.

Of the four largest banks, Santander Brasil saw the fasted lending growth at 8.7%, with the loan portfolio reaching to 354bn reais at the end of March. The expansion was led by an increase in lending to individuals (21.9%), which offset a 6.5% decline in loans to large corporations.

"The retail recovery is a strong indicator that we are supporting the resumption of the economy and, more importantly, that we are prepared to continue to do so as the country grows again towards its potential," said Santander Brasil's president, Sergio Rial.

The first quarter earnings increase at local lender Banco Bradesco was nearly 10% on the back of lower provisions and administrative expenses, increasing to 5.10bn reais from 4.65bn in the same quarter of 2017.

The loan book shrank in the quarter due to a reduction in new corporate lending. Total loans dropped 3.2% from a year before to 487bn reais. Corporate loans fell 6.7% while personal loans rose 3.5%.

Despite the reduction, the bank expects its loan portfolio to expand between 3% and 7% this year on the back of the improving economy.