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Banco do Brasil: 'Capital markets dynamics' drive loan growth guidance down

Banco do Brasil SA's sharp downward revision of 2019 corporate loan growth is due to market dynamics in Brazil, where borrowers are increasingly looking to capital markets for financing, executives said Aug. 9.

The bank 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 of the year. Banco do Brasil now expects its total loan portfolio to end the year within the range of a 2% contraction and 1% growth.

Speaking during a conference call to discuss the state-controlled bank's second-quarter earnings, Investor Relations Manager Daniel María said the bank had noted a "huge inflow" of assets into local funds in Brazil, as a part of a "current dynamic" that has seen corporations increasingly tapping capital markets, as opposed to taking bank loans.

"These are natural movements on the assets side... normal in every economy," María said on the call.

According to the executive, the loan growth contraction could continue in 2020, depending on the speed of the rise of loans to small and medium-sized enterprises, which would compensate the decrease in large company loans.

Meanwhile, Banco do Brasil maintained its growth guidance for agribusiness lending at 3.0% to 6.0%. Despite a trend of decrease in the portfolio of loans to agribusiness companies, the bank said disbursements for traditional rural lending had been boosted by 20% as a part of the government's 2019/20 Harvest Plan. Daniel María said the decline in agribusiness loans had come because of the same capital markets trend seen in corporate loans.

NPLs jump 'isolated'

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 increase from the previous quarter 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. According to Daniel María, Banco do Brasil is prepared to meet the situation of the borrower. "This could have some impact in NPLs, but we are well provisioned," the investor relations manager said, adding that the case had no impact on the revised loan growth guidance.

Although Banco do Brasil did not specify the corporate borrower, the reference seems to point to construction and engineering conglomerate Odebrecht SA, which filed for bankruptcy protection in June.

Cielo a "core business"

Asked if Banco do Brasil planned to sell its 29% stake in card processor Cielo SA, Daniel María said the unit remained a "core business" for the lender. "It's something unthinkable not having this operation ... Looking at the structure of the market we have nowadays, we confirm that we don't consider that for sale."

Earlier, CEO Rubem Novaes also denied any such sale, responding to an O Estado de S. Paulo report last week that caused Cielo shares to rally by 15%.