October 31, 2019 / 10:00 AM / 7 months ago

UPDATE 2-Banco Bradesco to close more branches amid cost cuts

(Updates with CEO, analysts comments, shares)

By Carolina Mandl

SAO PAULO, Oct 31 (Reuters) - Banco Bradesco SA, Brazil's second-largest private sector lender, will shut roughly 300 branches in 2020, as part of a push to tackle operating expenses that ate into third-quarter earnings, its chief executive said on Thursday.

Bradesco has been posting higher-than-expected costs since the beginning of the year, falling short of its own targets and disappointing investors. In January, the bank said costs would grow as much as 4% in 2019, but they are up 7.5% in the first nine months of the year.

That weighed on Bradesco shares on Thursday, which fell nearly 5% even though the bank reported quarterly net income in line with estimates.

CEO Octavio de Lazari Junior told journalists in a conference call that the bank will shut down 150 branches this year alone. The bank ended September with 4,567 branches.

Lazari said that a recent voluntary severance program will also help bring down costs. He said 3,000 workers had already adhered to the program, roughly 3% of its headcount. Bradesco has also been renegotiating better terms for supplier contracts and settlements of labor disputes.

The bank reported on Thursday that third-quarter recurring net income rose 19.6% to 6.542 billion reais ($1.64 billion), in line with a Refinitiv analysts' estimate, boosted by insurance results and consumer lending.

Analysts at Credit Suisse remarked in a note to clients that operating expenses had disappointed on higher marketing and personnel expenses.

Fee income also came in below the bank's target, but Lazari said it is likely to end 2019 in the 3% to 7% growth range set at the beginning of the year.

Lazari said he expects the bank to post a return on equity around 20% in the coming quarters, in spite of Brazil's all-time low interest rates. Bradesco reported a profitability ratio of 20.2% in the third quarter.

The bank aims to speed up growth to hit its target.

"Gains of scale will be essential for the bank to maintain its profitability amid lower interest rates," Lazari told journalists.

Bradesco's loan book grew by 3.2% in the quarter, mainly driven by consumer lending and small companies. The CEO said consumer loan growth is likely to keep up its fast pace in coming quarters.

Loans in arrears over 90 days rose to 3.6%, up 0.4 percentage point. The bank said the rise was caused by issues with corporate loans. Loan loss provisions rose 4% from the second quarter.

$1 = 3.9877 reais Reporting by Carolina Mandl; editing by Jason Neely

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