Un­cer­tainty clouds Brazil's bank view on cor­po­rate de­faults, CEO says

The Pak Banker - - 6BUSINESS -

Itaú Uni­banco Hold­ing, Brazil's No. 1 bank by mar­ket value, is hav­ing a dif­fi­cult time pre­dict­ing trends in cor­po­rate loan delin­quen­cies amid an un­cer­tain out­look for some in­dus­tries and poli­cies to shore up the econ­omy, Chief Ex­ec­u­tive Of­fi­cer Roberto Se­tubal said on Thurs­day.

The qual­ity of Itaú's con­sumer loan book is rel­a­tively less dif­fi­cult to con­trol be­cause the seg­ment is af­fected by fewer in­flu­ences than cor­po­rate credit, Se­tubal said at an event with the bank's share­hold­ers in São Paulo. "In the cor­po­rate seg­ment, as­set qual­ity is more linked to things that go be­yond the pure act of lend­ing, which are linked to gov­ern­ment poli­cies or cer­tain in­dus­try as­pects over which we have no con­trol," he said.

A big­ger-than-ex­pected jump in de­faults cast a shadow over sec­ondquar­ter profit at Itaú, un­der­scor­ing a de­te­ri­o­rat­ing out­look for banks in the coun­try. De­fault ra­tios at Itaú in­creased in the pe­riod for the first time in 11 quar­ters, off­set­ting the ben­e­fits of ris­ing bor­row­ing costs and strong fee in­come that helped drive its profit to an all-time high. Last quar­ter, Itaú's 90-day de­fault ra­tio rose to 3.3 per­cent, the high­est in a year and above ex­pec­ta­tions. Ex­ec­u­tives ex­pect delin­quen­cies to rise through year-end, a sign that fall­out from a cor­rup­tion scan­dal at state firms and Brazil's worst re­ces­sion in 25 years will hurt cred­it­wor­thi­ness.

"One or another shift in the eco­nomic out­look could in­deed worsen our ex­pec­ta­tions about de­faults," Se­tubal added. Econ­o­mists ex­pect Brazil's gross do­mes­tic prod­uct to shrink in 2015 and next year, which would be the first con­sec­u­tive an­nual con­trac­tions since the 1930s.

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