Banco do Brasil May Double Loans to Individuals, Bendine Says

By Telma Marotto
Aug. 21 (Bloomberg) -- Banco do Brasil SA, Latin America’s largest lender, may double credit to individuals over the next decade as falling interest rates spur demand for car and home loans, President Aldemir Bendine said.
Personal loans may climb to as high as 50 percent of the state-controlled bank’s total portfolio from 27 percent in the second quarter, Bendine said. Such lending rose 69 percent to 68.5 billion reais ($37.1 billion) in the three months ending June 30 after the central bank cut the benchmark interest rate below 10 percent for the first time.
The push is helping the Brasilia-based bank counter a drop in revenue from lower borrowing costs. Banco do Brasil’s net interest margin, the difference between what the bank paid to raise funds and what it earned from loans, increased to 7.3 percent in the second quarter from 7.1 percent a year earlier versus a drop at Itau Unibanco Holding SA, Brazil’s second- largest bank. Banco do Brasil is up 75 percent this year, more than double the rise of Itau Unibanco.
“The best way to compensate for losses in revenue in a scenario of lower benchmark interest rates is to increase credit volume,” Bendine, 45, said in an interview yesterday in Sao Paulo. “This good moment for Brazilian banks is due in large part to the size of the population that is having access to bank products.”
Banco do Brasil regained its position as Latin America’s largest bank in the second quarter from Sao Paulo-based Itau Unibanco and boosted profit 43 percent to 2.35 billion reais. Banco do Brasil boosted lending by 33 percent in the quarter to 252.5 billion reais, compared with 15 percent growth for Itau Unibanco and 18 percent for Banco Bradesco SA.
U.S. License
Banco do Brasil is awaiting U.S. regulatory approval to open a retail business in the country this year to serve the 1.4 million Brazilians living there, Bendine said. It also plans to expand in Latin America, Africa and Asia, he said.
“The banking business is one of scale,” Bendine said. “It’s natural that, as the local market matures, we seek other markets.”
Revenue from abroad may represent 10 percent of the bank’s earnings in the future, Bendine said.
Banco do Brasil is lending at lower rates than its competitors after the central bank slashed the benchmark lending rate five times this year to a record low of 8.75 percent to pull the economy out of a recession. At the beginning of August, Banco do Brasil’s average interest rate for consumer credit was 33.2 percent, compared with 66.7 percent at Itau and 80.8 percent at Bradesco, according to the central bank.
Banco do Brasil’s market share in Brazil grew to 19 percent in the second quarter from 16 percent in the first quarter of 2008.
State Banks
“The stronger increase in credit to individuals helped margins to grow,” said Jayme Alves, a Sao Paulo-based analyst with Spinelli SA who has a “buy” rating on the stock. “This strategy also helped the bank to gain market share.”
Finance Minister Guido Mantega said on Aug. 13 that state- controlled banks helped to lift the economy from its first recession since 2003. “Private banks should follow Banco do Brasil’s example,” he said.
Brazilian President Luiz Inacio Lula da Silva in April replaced Banco do Brasil’s president, Antonio Francisco de Lima Neto, with Bendine as the government sought to push lending rates lower and revive economic growth.
Brazil’s economy, Latin America’s largest, will grow 3.8 percent in 2010, after contracting an estimated 0.34 percent this year, according to the median forecast in a central bank survey of about 100 analysts published on Aug. 17.
Banco do Brasil is changing its revenue mix to boost profit. In the second quarter, credit to individuals surpassed loans to farmers for the first time, which helped earnings, Mario Pierry, an analyst at Deutsche Bank AG in New York, said in a report published Aug. 13. He also said insurance revenue “surpassed our forecasts.”
Insurance
Within the next three months, Banco do Brasil may announce changes to its insurance business, Bendine said. The bank plans to boost its stake in five companies to an average of 70 percent, he said.
Insurance may account for 25 percent of the bank’s earnings in five years, from 12 percent currently, he said on Aug. 19.
The insurance industry, worth 96.2 billion reais in premiums, is the biggest in Latin America and represents about 3.3 percent of gross domestic product, Fitch Ratings said in a July 6 report. In some other countries, that ratio can be as high as 30 percent of GDP, Bendine said.
‘Big Boom’
Mortgage lending represents “the big boom for credit in the country in coming years,” Bendine said. Car loans also will continue to grow, he said. Car loans at the bank increased 74 percent in the second quarter. Home loans totaled 350 million reais at the end of June, up from 7 million reais a year earlier. Banco do Brasil began offering mortgages in April 2008.
Banco do Brasil’s non-performing loan rate, as measured by late payments of more than 90 days, rose to 3.3 percent in the second quarter from 2.5 percent a year earlier. The rate, which is at its highest level since at least September 2007, will decline by yearend, Bendine said on Aug. 13.
At Itau, defaults increased to 5.4 percent at the end of June from 4 percent a year earlier. At Osasco-based Bradesco, defaults in the second quarter rose to 4.6 percent from 3.4 percent a year earlier.
Banco do Brasil provisions for bad loans was 214 percent of loans in default for 90 days, compared with 182 percent at Itau and 169.1 percent at Bradesco, Spinelli’s Alves said.