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