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Profitability, loan defaults at big Brazilian banks expected to improve in Q3

Amid expected improvements in asset quality metrics, the three largest listed banks in Brazil are forecast to post higher profits in the third quarter of 2018 compared to both the linked quarter and year-ago period.

According to mean estimates from S&P Global Market Intelligence, Itaú Unibanco Holding SA, Banco Bradesco SA and Banco do Brasil SA are expected to book combined net income of 15.25 billion reais for the three-month period, up 10.75% from 13.77 billion reais in the third quarter of 2017.

Banco do Brasil's quarterly profit is expected to grow 21.77% year over year to 3.30 billion reais, while Bradesco's net income is seen surging 11.64% to 5.37 billion reais. Itaú Unibanco, meanwhile, is expected to show a profit of 6.58 billion reais, which would mark an increase from 6.25 billion reais booked a year earlier.

The earnings forecasts come amid a steady decline in delinquency rates for non-earmarked loans in Brazil, which fell to 4.2% in August from 4.3% in the previous month and 5.6% a year ago, according to central bank data.

Bradesco executives earlier said the bank expects delinquency levels to decline through 2018 and return to precrisis levels by the end of the year. When it reported second-quarter results, the São Paulo-based lender also improved its full-year guidance for loan-loss allowance expenses.

Banco do Brasil has a similar outlook and expects to cut provisions for bad loans in the short term even as it incorporates more risk in its credit portfolio this year and next.

Shares of all three banks shot higher following Jair Bolsonaro's strong showing in the first round of presidential elections in Brazil.

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As of Oct. 17, US$1 was equivalent to 3.68 Brazilian reais.

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Want to see detailed estimates for a given company? Go to its profile page on the Market Intelligence platform and on the left side select Consensus Estimates under the Estimates section. Here is an example for Itaú Unibanco Holding.
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