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Non-Tech : The Brazil Board -- Ignore unavailable to you. Want to Upgrade?

To: THE ANT who wrote (1694)	5/15/2017 12:23:00 PM
From: elmatador	Respond to of 2504

Latin America: NPLs point to credit quality recovery in Brazil he Q1 2017 results of the Brazilian banks might mark the beginning of an inflection point for the country’s credit performance, according to Fitch Ratings. By: Rob Dwyer Published on: Monday, May 15, 2017 Private banks ahead of the curve in terms of provisioning; Banco do Brasil returns to double-digit ROE. The Q1 2017 results of the Brazilian banks might mark the beginning of an inflection point for the country’s credit performance, according to Fitch Ratings. The rating agency believes that the signs of stabilization of the banks’ non-performing loans (NPLs) in the first quarter of this year could be the beginning of a turnaround in the country’s hitherto long-deteriorating credit performance and depressed credit demand. Data from the Brazilian central bank, published in May, show that the system’s NPL ratio increased only marginally (3.8% from 3.7%) in the three months to March 17. Meanwhile, early NPLs – those that are overdue for between 15 days and 90 days – actually declined, by 0.5 percentage points to 4.3%. Raphael Nascimento, Fitch Raphael Nascimento, Fitch banking analyst in São Paulo, believes this second statistic "could indicate a broader turning point for the segment". He also points out that the retail portfolio NPLs remained flat "which is notable as seasonal factors tend to weigh on this segment in the first quarter. "NPL ratios are stabilizing at a time when loan portfolios continue to contract, meaning that the improvement is not due to an expansion in lending but to factors affecting the ratio’s remunerator." Deutsche Bank’s research analyst Tito Labarta agrees with Fitch’s assessment, adding: "Early corporate NPLs improved significantly, which could indicate a turning point for the segment." However, despite the signs of green shoots, Fitch’s Nascimento adds a note of caution: "Whether this will translate into a sustained trend remains highly uncertain. Fitch maintains that the operational environment will stay deeply challenging, with asset quality deterioration continuing to be a big risk in 2017. "There will also be continued performance differentiation between the public and private banks." The private banks continue to impress despite the difficult operating environment. Their aggregated improved credit performance boosted the banks’ return on equity (ROE) despite weaker revenue generation from lower lending volumes. Average ROE for Bradesco, Itaú and Santander rose to 18.7% on Q1 2017 compared with 16.6% one year earlier. Much of this is because the private banks have already provisioned for the bulk of their bad loans in 2015 and 2016, which helped earnings even as aggregate NPLs rose slightly in Q1 2017. And as lower provisioning has been a key driver of recent results, this earnings trend should hold true even if NPLs see a slight uptick in coming quarters. Impressive T aken individually, the results were also impressive. Bradesco’s net profit increased by 6.0% quarter on quarter and by 13.0% year on year, and recorded ROE of 17.2%. Itaú also boosted its first quarter net profits by 6%, to R$6.2 billion – equal to a 20% YoY gain. Santander also continued its impressive track record by notching up a QoQ increase in net profit of 14.7% – or 37.3% YoY. The bank’s consistently improving ROE is now at 15.0%, up from 12.4% in Q4 2014, fuelled mainly by a 13.3% increase in net interest income (NII), to R$8.7 billion and a strong rise in fee incomes, which increased by 20.0% YoY. Meanwhile, Nascimento’s portrayal of the public banks as floundering in the wake of their privately held peers isn’t wholly accurate. The first quarter results of Banco do Brasil saw the largely state-owned organization return to double-digit levels of ROE as the bank’s impressive turnaround story continues. The bank delivered net profits of R$2.5 billion – equal to ROE of 12.5% – thanks to improved cost of risk, strong revenue growth and the impact of the bank’s cost control programme. The Q4 2016 voluntary staff reduction plan and other cost-cutting measures saw Banco do Brasil’s core operating expenses fall by 1.6% YoY – far below the bank’s guidance of 1.5% to 4.5% growth for the year. Marcelo Telles, banking analyst for Credit Suisse, notes that Banco do Brasil’s "results would have been even better if it were not for the negative calendar effect, which impacted NII negatively by more than R$400 million". He also says he expects the bank’s strategy "to remain centred around narrowing the profitability gap to private-sector peers and to further improve its organic capital generation". This stronger performance by Banco do Brasil feeds into the improving narrative for the sector generally, according to UBS’s Philip Finch. In a client report, he says that recent results "showed sector fundamentals for public sector banks – including Caixa Econômica and Banrisul – have slightly improved despite the slowdown in credit demand … The 2017 outlook also appears more promising with public banks guiding for better loan growth, lower loss provisions and improved ROE." Gap However, Nascimento believes the gap between the public and private banks will continue to be pronounced due to the greater provisioning already conducted by those private banks – especially for large problematic corporate exposures. Banco do Brasil illustrates this point: the bank’s NPL ratio increased by 60 basis points in the first quarter of this year, to 3.89%, but would have increased by only 18bp if it hadn’t been for one specific corporate case. According to Nascimento: "Public banks’ higher exposure to weaker credit segments and lower loan growth will be factors in slowing the recovery in their NPL ratios versus their large private counterparts." Full article: euromoney.com Visit euromoney.com for additional distribution rights. For more articles like this, follow us @euromoney on Twitter.

To: THE ANT who wrote (1694)	7/20/2017 11:12:56 AM
From: elmatador	Read Replies (1) \| Respond to of 2504

Brazil Debt, Consumption On Mend, BNP Says Did you know: Brazilians allocate almost a quarter of monthly net income to paying debt, versus about 10% in the U.S. But things should get better in 2018 as interest rates fall, BNP Paribas says. Households in Brazil are still burdened by high debt service, but consumption could improve in 2018, BNP Paribas says. Economist Gustavo Arruda at Banco BNP Paribas Brasil writes: "Uncertainties and outstanding debt have postponed the expected recovery, we believe. While high uncertainty in the political scenario may explain the delay of investment decisions, another important argument for the slow recovery has been the very high levels of debt in both corporations and households. Companies have been deleveraging recently, helped by currency appreciation, and they have already showed better results this year in Q1. Households, though, are still paying their debt service, explaining the still weak consumption, we believe. According to Brazil’s central bank’s calculation, monthly debt service (as a percentage of monthly disposable income) has been flat at about 22%. In other words, Brazilian households have allocated almost one-fourth of their monthly net income toward the payment of debt service. As a comparison, US households pay about 10% of net monthly income towards debt service, while German households pay only about 6% and Australia households pay 15%. ...Levels of interest rates are the primary cause of very high debt service. ... The longer duration of housing loans tends to translate into more of a monthly interest burden ... On the cyclical front, recession and the lagged effect of monetary policy partly explain the recent trend in the interest rate burden ... The good news is that a lower cost of credit is in the pipeline, due to monetary policy action. The bad news is that given the usual lags this relief may not happen until 2018 ...We forecast that the central bank will cut rates to 7.0% (from the current 10.25%), and we project that growth will reach 3.0% next year, pushed by consumption ..."