(Adds comments from CEO Setubal, updates share performance)
By Guillermo Parra-Bernal
SAO PAULO Feb 7 Itaú Unibanco Holding SA
expects to cut loan-loss provisions by at least
one-quarter this year, underscoring the ability of Brazil's No.
1 bank by market value to keep defaults and costs in check
despite a challenging economic outlook.
On Tuesday, the São Paulo-based bank projected loan book
growth of up to 4 percent this year, despite shrinking interest
income. Provisions are seen between 14.5 billion reais and 17
billion reais ($4.65 billion and $5.46 billion), compared with a
record 22.1 billion reais last year.
Based on line-by-line guidance, Itaú could earn a profit of
24.5 billion reais this year, above the 23.9 billion-real
consensus estimate compiled by Thomson Reuters. Profit at Itaú
gained steam last quarter as falling defaults and robust fee
income led to a bigger-than-projected cut in provisions.
Recurring net income, or profit excluding one-time items,
came in at 5.817 billion reais last quarter, up 4 percent from
the third quarter and above Thomson Reuters' average consensus
estimate of 5.762 billion.
Return on equity, a gauge of profitability, also beat
forecasts, hitting 20.7 percent last quarter. Based on the new
guidance, which sees declining provisions and expense growth
below annual inflation, ROE could stay around 20 percent this
"Our provision guidance is in line with our projections for
the behavior of loan delinquencies, which is the most favorable
in recent times," Chief Executive Officer Roberto Egydio Setubal
told reporters at an event to discuss quarterly results.
Itaú shares posted their biggest intraday jump in more than
two weeks on Tuesday, rising up to 4 percent to 39.55 reais, a
52-week high. Banking and financial shares took a ride on Itaú's
rally, a sign of confidence over the industry's ability to
weather Brazil's nearly three-year-old recession.
"We view Itaú's results, guidance and increase in payout as
positive for the shares," said Marcelo Telles, a New York-based
senior banking analyst with Credit Suisse Securities. "The bank
continues to outperform peers on the asset quality front."
Banks in Brazil are struggling with the country's harshest
recession since 1901 and fallout from "Operation Car Wash," a
sweeping corruption probe into state firms and large corporate
borrowers. Both have contributed to a three-fold jump in
Brazilian bankruptcy filings over the past couple of years.
Setubal's focus on cost and default controls paid off,
allowing Itaú to offset declining loan origination volumes and
decreasing loan repricing power as the central bank began to cut
borrowing costs aggressively late last year.
By setting conservative guidance goals for this year,
Setubal is pointing to some of the challenges facing Itaú: more
companies refinancing looming obligations, and unemployment
preventing households from remaining current on their debt,
Provisions earmarked for clients involved in the Operation
Car Wash probe are "adequate at current levels," Setubal said.
Many of companies targeted by the probe have had to
refinance their loans, file for bankruptcy protection or
restructure other obligations.
Setubal retires in April after more than two decades at the
helm of Itaú and will be replaced by Cândido Bracher, for over a
decade his lieutenant at Itaú's corporate and investment banking
arm Itaú BBA SA.
Bracher will have to contend with a sharp decline in
Brazilian interest rates, a slow Latin American economic
recovery and uncertainty stemming from U.S. President Donald
Trump's protectionist policies, analysts said.
Interest income fell 2.2 percent last quarter, although they
came in above expectations. The default ratio fell to 3.4
percent, well below consensus estimates, after Itaú wrote off a
loan from an unidentified large borrower.
Provisions came in at net 4.819 billion reais, well below an
estimate of 5.380 billion reais for the quarter. Non-performing
loan formation, a gauge of future defaults that may result in
additional provisioning, slumped to the lowest level in six
quarters, the bank said.
The coverage ratio, or how much capital has a bank available
to cover bad loans, rose to 222 percent last quarter, the
highest in at least two years.
($1 = 3.1150 reais)
(Additional reporting by Aluísio Alves in São Paulo; Editing by
Louise Heavens, Chizu Nomiyama and W Simon)