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Cost-cutting drives higher Q1 profit among Brazil's bank majors

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Cost-cutting drives higher Q1 profit among Brazil's bank majors

Brazil's major banks posted a 7.40% yearly improvement in their accumulative profit for the first quarter of 2018, as lower expenses offset weakness in some of the lenders' revenue sources.

Total net income of the country's three largest listed banks Banco Bradesco SA, Banco do Brasil SA and Itaú Unibanco Holding SA hit 13.50 billion reais for the three months through March 31, up from 12.57 billion reais in the same period in 2017. Banco do Brasil's net income grew the most at 12.52%, but it had the smallest total profit among the three banks. Itaú's profit expanded 3.76% while Banco Bradesco's bottom line advanced 9.73%.

The results come amid a low interest rate environment in Brazil coupled with a still-recovering economy, which together have kept borrowing costs at cheaper levels in the country. Specifically, income from loans, leases, securities and derivatives among the three major banks declined 22.04% year over year to 77.97 billion reais in the first quarter.

Furthermore, the banks' income from other financial operations — including insurance and pension plans as well as foreign exchange activities — slipped to 15.94 billion reais from 20.65 billion reais a year ago.

However, loan delinquencies across the three banks were also down in the quarter, affording the lenders to reduce their provisions for loan losses by 32.34% to 13.24 billion reais. The banks also saw a 31.55% reduction in expenses from other financial operations, which came to 47.47 billion reais.

Meanwhile, a 5.15% slide in other operating income, which reached 45.62 billion reais, was also countered by a decline in other operating expenses and a smaller share of tax and profit sharing.

Contained costs contributed to a year-over-year growth in the banks' net interest margins, ranging between 0.89% and 2.49%, even as interest rates in the country remain depressed. Among the three, Bradesco was the only one which improved its return on average equity, rising to 16.07% from 15.95%.

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Click here to view the earnings of major Brazilian banks for Q4'17.
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As of May 15, US$1 was equivalent to 3.67 Brazilian reais.