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Banco do Brasil cuts lending guidance as Q2 profit jumps 36.8%

Banco do Brasil SA on Aug. 8 posted a 36.8% annual increase in its second-quarter adjusted profit, but revised its loan growth guidance to include a possible portfolio contraction in 2019.

The state-owned bank said adjusted net income for the three-month period totaled 4.43 billion Brazilian reais, or 1.59 reais per share, up from 3.24 billion reais, or 1.16 reais per share, in the year-ago quarter.

However, the company's credit portfolio grew only 1.1% in the first half of the year, well below its initial full-year guidance of between 3.0% to 6.0%. It revised the guidance sharply downward, and now expects its loan book to end the year between 2% smaller and 1% larger.

The bank raised its guidance range for growth in individual loans to between 8.0% and 11.0% from 7.0% to 10.0% previously, but lowered its forecast for company loans to a contraction of between 13.0% and 10.0% from an earlier estimate of up to 3.0% growth. Loans to companies declined 6.3% in the first half.

Rural lending was also below the full-year target in the first half, but the bank maintained growth guidance for that segment at 3.0% to 6.0%. The rest of its guidance was also unchanged, including a forecast for adjusted net income to total between 14.5 billion reais and 17.5 billion reais this year.

The increase in Banco do Brasil's second-quarter profit, meanwhile, was mainly driven by higher fee and commercial income, supported by small declines in allowance and administrative expenses.

Net interest income totaled 13.06 billion reais, rising 2.5% from the linked quarter and up 3.2% from 12.66 billion reais a year earlier. Fee income ticked 9.4% higher year over year to 7.44 billion reais, while commercial income jumped 18.3% to 8.08 billion reais.

Banco do Brasil's net interest margin came in at 3.9% for the second quarter, down from 4.0% in both the linked and year-ago quarters.

The bank booked 3.56 billion reais in net allowance for loan losses in the second quarter, down 0.6% from 3.58 billion reais a year ago. Administrative expenses dropped 1.1% to 7.65 billion reais.

The lender's 90-day nonperforming loan ratio hit 3.25% in the second quarter, up from 2.58% in the linked quarter but down from 3.32% a year earlier. The bank attributed the quarter-over-quarter increase to "a large corporate segment group" filing for chapter 11 bankruptcy. Excluding that specific case, the NPL ratio would have been 2.61% in the second quarter.

Banco do Brasil did not specify the corporate borrower, but it may have been referring to construction and engineering conglomerate Odebrecht SA, which filed for bankruptcy protection in June. Banco do Brasil is one of the scandal-plagued company's largest creditors and most of that exposure is estimated to be unsecured.

As of Aug. 7, US$1 was equivalent to 3.98 Brazilian reais.