Banco do Brasil’s Profit Drops 20 Percent in Q1

RIO DE JANEIRO, BRAZIL – Banco do Brasil’s (BB) profit dropped 20.1 percent in the first quarter of 2020 compared to the same period in 2019, to R$3.4 billion (US$680 million). It is the first contraction in the bank’s profit since Q4 in 2016 when it dropped 34 percent.

The decline in the period was a reflection of the large increase in reserves to cover potential defaults, which are expected to increase given the current economic crisis sparked by Covid-19. These reserves increased 63.3 percent, to R$5.5 billion. Of the total, around R$2 billion are part of a complementary reserve added to meet the current scenario.

In a report released Thursday, May 7th, Banco do Brasil stated that the breakdown of the additional provision was mainly for the individual loan segment, with R$1.17 billion. The corporate segment, in turn, was left with R$824 million of the additional provision, while agribusiness had R$46 million.

The public bank’s default rate stood at 3.17 percent, an increase of 0.17 percentage points in relation to the first quarter of 2019.

Banco do Brasil is the last of the four major publicly traded banks in the country to disclose its first quarter results. With the exception of Santander, the other banks pointed out significant drops in net profits for the period, mainly driven by the increase in reserves for default.

Despite the drop in profits, BB’s expanded credit portfolio – which includes securities – increased 5.8 percent to R$725.1 billion. The highlight was the individual portfolio, which increased nine percent, to R$217.2 billion.

Loans to corporations grew 5.9 percent in the period, to R$221.9 billion. Concessions for micro, small and medium-sized companies increased 12 percent, to R$66 billion, while credit for large companies dropped three percent, to R$103.1 billion.

At the start of the pandemic, the Central Bank had announced a package of measures to pump money into the financial system, such as the option of loans guaranteed by financial bills to institutions and the reduction of compulsory loans (a portion of the clients’ money that banks must retain in the Central Bank).

The banks also account for 15 percent of the total resources – the remaining 85 percent will be financed by the government – to be financed by the emergency credit line aimed at funding the payroll of small and medium-sized companies (with annual revenues of between R$360,000 and R$10 million). The total credit to be released is R$40 billion.

In a note, the bank stated that, in line with the note issued by the Brazilian Federation of Bank (FEBRABAN) and with the goal of minimizing the temporary impacts of the current pandemic scenario, it offered clients the possibility of renegotiating debts to permit payment between 60 and 180 days, in addition to other support and guidance actions.

The bank retained up to R$100 billion for credit lines, R$24 billion for individuals, R$48 billion for companies, R$25 billion for agribusiness, and R$3 billion for health supplies by municipalities and governments. According to the bank, over R$98 billion in credit disbursements and extensions were recorded.

“We continue to assess and monitor the potential impacts on the credit portfolio, considering the peculiarities of the different segments, sectors, and credit lines, and we have implemented proactive measures for risk and capital management. We work to preserve the continuity of our operations and the long-term sustainability of our company and our relationship with our customers and shareholders”, the bank stated in its report.

The bank’s fees and service charges revenues were up by four percent to R$7.1 billion. The bank’s net financial margin (income from credit operations) dropped 9.5 percent to R$8.5 billion.

According to Banco do Brasil, due to the highly volatile and uncertain environment resulting from the novel coronavirus pandemic, which has required frequent updates of scenarios and projections, complicating the development of accurate estimates, financial projections for the full year have been suspended.

Source: Folhapress