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Higher provision expenses knock Bradesco's Q4'16 profit 17.5% lower

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Higher provision expenses knock Bradesco's Q4'16 profit 17.5% lower

Banco Bradesco SA's fourth-quarter 2016 profit sank 17.5% from a year earlier as the Brazilian bank recorded a 31.8% jump in provision expenses amid the country's economic recession.

The lender reported book net income of about 3.59 billion Brazilian reais for the three-month period, down from 4.35 billion reais a year earlier. According to S&P Capital IQ estimates, the bank was expected to post a profit of 4.57 billion reais for the 2016 fourth quarter.

Adjusted net income, which excludes one-off items, totaled 4.39 billion reais, down 3.9% from 4.56 billion reais a year ago.

Total net interest income at the Osasco-based company reached about 15.67 billion reais, up 8.0% from 14.51 billion reais in the fourth quarter of 2015. Fee and commission income, meanwhile, grew 14.4% year over year to 7.55 billion reais.

Those gains, however, were offset by loan-loss allowance expenses of 5.53 billion reais, rising from 4.19 billion reais a year earlier. Loan-loss allowances for full year 2016 totaled 21.74 billion reais, which the bank said was mainly due to further economic deceleration and higher provisioning for certain corporate clients, particularly a "specific case" that had an impact of 1.20 billion reais in the first half of 2016.

Higher administrative and personnel expenses also weighed on Bradesco's fourth-quarter 2016 results, with such costs rising 24.6% annually to about 10.48 billion reais. The bank attributed this increase to higher expenses associated with outsourced services and communication, among other factors.

The bank's expanded loan portfolio grew 8.6% in the 12 months through December 2016 to reach 515.0 billion reais, considering the consolidation of HSBC Bank Brasil SA - Banco Múltiplo as of the third quarter. Its 90-day delinquency ratio rose to 5.5% in the fourth quarter from 4.1% a year ago.

The company's annualized return on average equity fell to 17.6% in the fourth quarter from 20.5% a year earlier, while its annualized return on average assets declined to 1.5% from 1.7%.

Book net income for full year 2016 was 15.08 billion reais, down from 17.19 billion reais in 2015.

On a pro-forma basis for the HSBC Brasil acquisition, Bradesco expects its expanded loan portfolio to grow between 1% and 5% in 2017. Net interest income could either fall by up to 4% or post zero growth, while fee and commission income is seen growing between 7% and 11% this year. The bank expects operating expenses to either fall by up to 1% or grow up to 3% in 2017.

Total loan-loss provision expenses are expected to stand at between 21.0 billion reais and 24.0 billion reais in 2017.

As of Feb. 1, US$1 was equivalent to 3.16 Brazilian reais.