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Recession expected to weigh on Q4'16 profits for Brazil's banking majors

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Recession expected to weigh on Q4'16 profits for Brazil's banking majors

Brazil's prolonged economic recession will likely weigh on the fourth-quarter 2016 results of the country's top-three listed banks, with two of them expected to post lower profits compared to a year earlier.

According to S&P Capital IQ estimates, Banco do Brasil SA is expected to report fourth-quarter 2016 net income of 1.94 billion Brazilian reais, down 26.79% from 2.65 billion reais a year ago. EPS is expected to fall to 78 centavos from 97 centavos.

The state-run bank is reportedly in need of cash to support its core operations in Brazil, and is looking to sell a stake in its Argentine unit for this purpose. The lender recently cut its guidance for fee income growth in 2016 and also raised its loan-loss provisions forecast for the full year. According to calculations based on the bank's revised guidance, it may have allocated an additional 5.9 billion reais in provisions for 2016, Valor Econômico reported earlier in January.

Private bank Itaú Unibanco Holding SA, which is reportedly looking to grow its global private banking business by between 5% and 10% annually, is expected to show a relatively smaller decline in quarterly profit.

Net income at the São Paulo-based lender is expected to total 5.51 billion reais, down 4.51% from 5.77 billion reais in the fourth quarter of 2015. After reporting a 9.3% year-over-year fall in third-quarter 2016 profit, the bank's executives said they plan to focus on growing safer lending portfolios amid continued economic instability in Brazil.

Profit at Banco Bradesco SA, meanwhile, is expected to stay nearly flat in the 2016 fourth quarter at 4.57 billion reais, compared to 4.56 billion reais a year earlier.

An almost 50% increase in loan-loss provisions in the third quarter of 2016 resulted in the bank recording a 21.5% year-over-year drop in its net income for that period. On a subsequent conference call, executives said they expect provision expenses to stabilize in the coming quarters, although they did not expect a more significant drop to materialize until the second half of 2017.

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Brazil's economy has been in recession for the last two years, and the downturn played a part in the impeachment of former President Dilma Rousseff in 2016. Her successor, Michel Temer, recently announced new stimulus measures to boost growth, but his administration will have its work cut out for it as corporate credit demand fell 2.2% in 2016 while bankruptcy filings jumped 12.2%.

Finance Minister Henrique Meirelles recently said Brazil's economy will resume growth in the first quarter of 2017, helped by the central bank's aggressive monetary easing.

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SNL Image Click here to view country level information for Brazil.

As of Jan. 27, US$1 was equivalent to 3.15 Brazilian reais.