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Banco do Brasil beats profit estimates as provisions fall in Q4

Banco do Brasil SA beat fourth-quarter and full-year 2017 profit estimates amid a sharp drop in allowance for loan losses and a decline in operating expenses.

The bank posted net income of about 3.11 billion Brazilian reais for the quarter, up 222.7% from the 963 million reais earned in the year-ago period. Adjusted net income, which excludes one-off items, improved 82.5% year over year to reach 3.19 billion reais in the fourth quarter.

Those one-off items include expenses of 294 million reais related to a deal in which major Brazilian banks, including Banco do Brasil, agreed to compensate Brazilian savers for losses suffered as a result of government economic plans in the 1980s and 1990s. Year-ago results, however, included some 784 million reais in one-off items.

Banco do Brasil's net interest income totaled 14.55 billion reais in the fourth quarter, down 5.1% from 15.33 billion reais a year earlier. Fee income, however, increased 6.6% to 6.74 billion reais, while other operating income ticked 2.2% higher to about 2.10 billion reais.

The bank's net interest margin was 4.8%, compared to 4.6% in the linked quarter and 5.0% in the year-ago period.

The company booked 5.64 billion reais in allowance for loan losses, representing a decline of 24.7% from 7.49 billion reais in the fourth quarter of 2016. Total operating expenses, meanwhile, fell 6.2% on a yearly basis to 13.38 billion reais, with administrative expenses declining 4.4% and personnel expenses falling 7.8%.

The bank's expanded loan portfolio shrank 3.8% in the 12 months through December 2017 to reach 681.29 billion reais, although it grew 0.6% from the third quarter of 2016. Its 90-day nonperforming loan ratio was 3.74% in the fourth quarter, compared to 3.94% in the linked quarter and 3.29% a year earlier.

The fourth-quarter results helped Banco do Brasil's full-year 2017 net income reach 11.01 billion reais, rising 37.1% from the 8.03 billion reais earned in 2016. S&P Capital IQ mean estimates had projected a quarterly profit of 2.80 billion reais and a full-year profit of 10.69 billion reais.

In providing guidance for 2018, the bank said it expects its adjusted net income to total between 11.5 billion reais and 14.0 billion reais this year. The expanded organic domestic loan portfolio is seen growing 1% to 4%, while its loan-loss allowance expenses, net of recoveries, are projected to between 16.0 billion and 19.0 billion reais.

The bank expects fee income to increase 4% to 7% in 2018 and administrative expenses to rise 1% to 4%.

Banco do Brasil also approved a distribution of additional interest on own capital totaling 675.67 million reais for the fourth quarter. The payout, which equates to 24.49 centavos per share as of Feb. 22, will be paid March 12 to shareholders of record as of March 1.

As of Feb. 21, US$1 was equivalent to 3.26 Brazilian reais.