Banco do Brasil Cuts Credit-Growth Outlook

SÃO PAULO--Brazil's state-run Banco do Brasil SA, Latin America's largest bank by assets, cut its credit-growth outlook for the year, as consumer demand wanes amid a faltering economy.

The bank cuts its credit-portfolio growth target to up to 16% for the year, from up to 18%. Last year, the bank's credit portfolio expanded 19.3%. The bank now expects individual credit to rise by up to 12%, compared with a previous view of up to 16%, and corporate lending to rise by up to 16% compared with an earlier view of up to 18%.

After falling into recession in the first half, Brazil's economy is struggling to regain traction amid low levels of consumer and business confidence, inflationary pressures and high interest rates. Economists expect growth of less than 0.5% this year, compared with growth of 2.5% in 2013. The re-election of left-leaning President Dilma Rousseff last month also has cast doubt on Brazil's ability to overhaul the policies needed to restore growth.

State banks have fueled Brazil's personal and commercial lending in recent years, and low demand for borrowing is starting to cut into banks' profits.

Rival Banco Bradesco SA also cut its credit-growth outlook to up to 11% from up to 14%. On Tuesday, private sector giant Itau Unibanco Holdings said that its credit portfolio would increase by a lower-than-forecast 8%, compared with a previous projection of 10% to 13%.

Despite the reduction in credit-portfolio expansion, Brazilian banks' profits have grown, mainly because of increased financial-services revenues and the high interest rates charged to clients. On Wednesday, Banco do Brasil posted recurring net profit for the third quarter of 2.78 billion reais ($1.11 billion), up from 2.7 billion reais in the year-earlier period.

Banco do Brasil's total outstanding loans rose to 732.7 billion reais, up 12.3% from 652 billion reais in the third-quarter of 2013. Consumer loans rose 6.9% to 175 billion reais, while corporate loans rose nearly 12.8% to 342 billion reais. Farm loans rose 21.6% to 158 billion reais.

The bank also took on more provisions because of expanded lending and default rates during the period. Provisions for bad loans totaled 4.57 billion reais in the quarter, up from 3.91 billion reais a year earlier. The nonperforming loan rate was 2.09%, up from 1.97% a year earlier and up from 1.99% in the previous quarter.

Return on equity was 16.1%, up from 15.7% a year earlier. Total assets rose to 1.43 trillion reais from 1.26 trillion reais. Financial-service revenue rose 9.4% in the period to 6.36 billion reais.

Write to Rogerio Jelmayer at [e-mail]

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