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Brazil banks brace for fresh wave of loan refinancing deals
April 27, 2016 / 4:04 AM / 2 years ago

Brazil banks brace for fresh wave of loan refinancing deals

By Guillermo Parra-Bernal
    SAO PAULO, April 27 (Reuters) - Brazil's largest listed
lenders are facing a deluge of requests from companies to
renegotiate at least 100 billion reais ($28 billion) in
problematic loans, posing headwinds for an industry struggling
with a harsh recession and soaring delinquencies. 
    Steelmaker Cia Siderúrgica Nacional SA and
engineering conglomerate Grupo Odebrecht SA are among dozens of
firms pressing banks to ease the terms of outstanding loans amid
Brazil's worst downturn in more than a century, sources familiar
with the plans said. Odebrecht and CSN, as the steelmaker is
known, declined to comment.
    With bankruptcy filings up 150 percent this year and the
economy poised to contract by about 4 percent for a second
straight year, lenders are seeking to stave off defaults by
cutting borrowing costs and stretching out maturities for small
and large corporate borrowers. Banks renegotiated 130 billion
reais in loans last year, central bank data showed. 
    As Brazil's listed banks prepare to report first-quarter
results this week, analysts are voicing concern about the impact
of loan renegotiations on future profits. According to Goldman
Sachs Group Inc analysts, the worsening market for Brazilian
banks could drag average return on equity down to a 15-year low
in coming months.
    Renegotiations have become "the equivalent of 'kicking the
can' a short distance down the road," Carlos Macedo, a New
York-based analyst with Goldman Sachs, said in a recent client
    Brazil's central bank estimated in a report earlier this
month that a 30 percent jump in renegotiated loans - and a 50
percent increase in restructured credit - over the past year
would increase the banking system's average default ratio by a
little less than 1 percentage point. 
    If the same pace of restructurings continues for another
year, earnings at Brazil's largest listed banks could fall
between 9 percent and 17 percent, JPMorgan Securities analysts
led by Domingos Falavina said in a recent note.
    'CAR WASH'
    On Wednesday, Banco Santander Brasil SA will be
the first of Brazil's top listed banks to report results. 
    Banco Bradesco SA will follow suit on Thursday,
while Itaú Unibanco Holding SA and state-controlled
Banco do Brasil SA plan to do so on May 3 and May 13,
    According to two sources, Bradesco and Santander Brasil
recently resumed talks with CSN to refinance a combined 1.2
billion reais in loans. The deal would allow CSN to start
repayments from 2018 onward, two years later than scheduled.
    Meanwhile, some of Odebrecht's subsidiaries are seeking to
renegotiate up to 35 billion reais in loans, as the engineering
conglomerate's involvement in a major corruption scandal at
state firms curtailed their access to funding, another two
sources said.
    Other borrowers seeking debt relief from banks include phone
carrier Oi SA, which this week launched talks to restructure
$14.3 billion of bond debt. 
    Fallout from the corruption probe known as "Operation Car
Wash" is hampering the ability of many companies to honor their
debt and would oblige lenders to step up refinancing deals this
year, the central bank report showed. 
    The need by companies and creditors to sidestep Brazil's
ineffective bankruptcy protection legislation - which hampers
debtors' ability to quickly get back on their feet - was also
fueling banks' new-found enthusiasm for renegotiations, analysts
    "Credit quality should continue to deteriorate but at a
slower pace than thought by most market participants, as banks
increase renegotiations, portfolio sales and write-offs," said
Francisco Kops, an analyst with Safra Corretora.
    Itaú, Banco do Brasil and Bradesco probably ramped up
loan-loss provisions last quarter by about 25 percent after
defaults climbed 0.6 percentage point to an average 3.5 percent
of their outstanding loans, according to analyst estimates
compiled by Thomson Reuters.
    That weighed on profits in the first quarter, the data
    Average ROE probably fell to 17.3 percent, the lowest level
at least two years. Recurring net income, or profit excluding
one-time items, sank an average 8.4 percent last quarter on an
annual basis - the first time that banks saw profit decline in
about three years.
    Following is a table with average consensus estimates for
some key first-quarter earnings indicators for Brazilian banks.
The numbers are expressed in billions of reais unless specified.
                           Q1 2016    Q4 2015     Q1 2015
  Recurring net income    4.002 bln  4.328 bln   4.369 bln
                            reais      reais       reais
     Pct Change (%)                   -7.5 pct    -8.4 pct
      Recurring ROE       17.3 pct    18.3 pct    20.4 pct
  90-Day Default Ratio     3.5 pct    3.3 pct     2.9 pct
  Loan-Loss Provisions    5.824 bln  5.386 bln   4.678 bln
                            reais      reais       reais
     Pct Change (%)                   8.1 pct     24.5 pct
    ($1 = 3.5239 Brazilian reais)

 (Additional reporting by Tatiana Bautzer in São Paulo; Editing
by Tom Brown)

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