Banco do Brasil’s Q3 Profits Down 23.3 Percent as Default Reserves Grow Apace

RIO DE JANEIRO, BRAZIL – Banco do Brasil‘s adjusted profit – which does not consider extraordinary items – has reached R$3.5 billion (US$700 million) in the third quarter this year, a drop of 23.3 percent compared to the same period in 2019. The downtrend was once again pushed by additional provisions, or reserves against default, which rose 40.5 percent, to R$5.5 billion.

Compared to the second quarter this year, the profit recorded a 5.2 percent increase. In the first nine months this year, the bank’s result totals R$10.2 billion, a 22.9 percent drop over January to September 2019.

The bank‘s total net income, which considers extraordinary items, stood at R$3.1 billion between July and September – a 27.5 percent drop over the same period in 2019 and 3.9 percent when compared to the preceding quarter.

Extraordinary items include non-recurring income and expenses, such as provisions for adverse judgements in lawsuits related to government economic plans that affected savings accounts, and extraordinary provisions for contingent lawsuits, among others.

In the period between July and September, reserves against default fell by 6.8 percent compared to the second quarter. In the first nine months of the year, these provisions totaled R$17 billion, an increase of 47.9 percent compared to the same period last year.

In a report released on Thursday, November 5th, Banco do Brasil stated that it has been maintaining the provisions at levels consistent with credit risks and that prudential provisions are in line with the portfolio’s dynamics.

“The cautious approach of incorporation of provisions into the portfolio have been gradual, with no excessive volatility, evidencing a more cautious stance regarding the required allocation of resources to cushion the impacts related to adverse and unprecedented effects produced by the pandemic crisis,” said the bank.

Banco do Brasil’s total credit portfolio reached R$730.9 billion in the third quarter this year, an increase of 6.4 percent over the same period in 2019 and an increase of 1.2 percent over the preceding three months.

The corporate segment, which has the greatest share of the total portfolio, stood at R$274.6 billion, up 7.9 percent in the period. Loans to individuals totaled R$222.6 billion – an increase of 6.2 percent – while credit for agribusiness totaled R$190.5 billion, up 4.2 percent in the period.

According to the bank, operations with MSMEs (micro, small and medium-sized companies) were a highlight in the corporate portfolio, growing 17.9 percent in the period, to R$74 billion. “The increase is mainly explained by the disbursements of R$6.2 billion in the credit line supported by PRONAMPE [National Program to Support Microenterprises and Small Businesses],” said Banco do Brasil in a report.

In the large companies segment, the credit portfolio stood at R$93.4 billion, down 2.3 percent over the period from July to September 2019.

The bank’s total default rate stood at 2.4 percent in the third quarter, a drop of 0.7 percentage points over the same period last year. Excluding a specific case not detailed by the bank, the delay rate would be 1.92 percent.

Net financial margin (main bank’s revenue, with credit operations) totaled R$8.5 billion in the third quarter, a drop of 11.7 percent over the same period last year.

Revenue with services rendered totaled R$7.3 billion, a drop of 2.5 percent in the same comparison.

Banco do Brasil’s extended credit portfolio reached R$109.2 billion in the quarter ended in September, an increase of 52.1 percent over the preceding quarter. The figure represents 17.3 percent of the internal credit portfolio.

According to the bank, 95 percent of this amount included high credit notes (meaning they had low credit risk) and 97.8 percent of the transactions had no history of arrears in the past 12 months. Of the total, 64.6 percent are tied to collateral and risk mitigating factors.

“We evaluate and monitor the potential impacts on the portfolio, considering the peculiarities of the various segments and credit lines and we have adopted proactive measures for risk and capital management. We strive to preserve the continuity of our operations and the long-term sustainability of our company and our relationship with our clients,” said the bank in a report.

The renegotiated credit portfolio totaled R$3.3 billion in the third quarter this year, an increase of 18.9 percent over the same period in 2019, but a decrease of 41.5 percent over the immediately preceding three months.

The renegotiated credit portfolio does not include loan operations where payment deadlines were extended during the scope of the pandemic. The bank stated that it has been working preventively to try to adjust the client portfolio to its payment capacity.

“Of the total operations contracted in the third quarter in the renegotiated portfolio due to arrears, 39.3 percent were in less than 15 days arrears, 25.8 percent between 15 and 90 days, 19.4 percent in over 90 days, and 15.5 percent were deemed losses. The individual segment accounted for 67.5 percent of contracts,” said the bank.

Source: Folhapress