(Rewrites with comment on strategy, share performance)
By Guillermo Parra-Bernal
SAO PAULO May 3 Brazil's No. 1 bank Itaú
Unibanco Holding SA will monitor problematic loans among large
corporate borrowers, a sign of caution as an unprecedented
credit downturn magnifies a deep recession and the impact of a
broad corruption scandal.
To protect Itaú's 34 billion reais ($10.8 billion) in
outstanding real estate and infrastructure loans, the bank will
negotiate longer repayment terms with borrowers on a
case-to-case basis, investor relations head Marcelo Kopel said
For borrowers facing a rising debt burden and depleting
cash, Itaú could demand they accelerate asset divestitures,
Kopel said. Credit risk for infrastructure firms rose last
quarter, driving Itaú's 15 day-to-90 day default ratio to a
"It's about gauging operational and financial feasibility of
companies in sectors facing a rough ride," Kopel said during a
call to discuss first-quarter results.
Itaú's strategy coincides with Brazilian banks trying to
curb the heavy loan-loss provisioning that caused their profits
to fall last year for the first time since 2009. Problems among
homebuilders and engineering firms are gaining steam as the
recession and a corruption scandal in construction company
Odebrecht cut off access to fresh capital.
Rising defaults among Itaú's biggest borrowers prevented it
from cutting loan-loan provisions as much as analysts expected
last quarter. Preferred shares fell the most in two weeks as the
pace of reduction in the indicator disappointed investors.
Still, lower provisions allowed Itaú to exceed
first-quarter profit estimates. Recurring net income, a measure
of profit excluding one-time items, hit a record 6.176 billion
reais, above an average consensus estimate of 6.010 billion
"Given the environment, Itaú's results were definitely
good," said Eduardo Rosman, an analyst with Banco BTG Pactual.
Return on equity reached 22 percent, the highest level in
five quarters and beating a 20.7 percent estimate. Expense
controls bolstered profitability, even as management raised the
ratio of available capital reserves for bad loans to 231 percent
and provisions fell less than expectations.
The 90-day default ratio was flat at 3.4 percent. Provisions
fell 7 percent to 5.392 billion reais, the lowest in almost
three years. Analysts expected 4.543 billion reais in
Non-interest expenses fell the most in a year and above
estimates. The decline underscored the success of a four-year
efficiency drive led by former bank president Roberto Setubal,
who retired this week after 23 years at the helm.
Both Setubal and his successor Candido Bracher stuck with
this year's operational targets.
Interest and fee income surprisingly fell in the wake of
fewer calendar days, declining borrowing costs and tepid demand
for loans and financial services in Brazil.
($1 = 3.1448 reais)
(Reporting by Guillermo Parra-Bernal; Editing by W Simon,
Bernard Orr, Grant McCool)