SAO PAULO (Reuters) - Brazil's largest listed banks are braced for another quarter of weak earnings as sagging economic growth kept dragging on demand for new loans and a surge in debt yields in Latin America's largest economy stoked hefty trading-related losses.
Second-quarter data from Brazil's top-four listed banks may reinforce the view that profitability trends remain fragile, with performance hinging on cost-cutting after revenue from lending-related activities stagnated, a Thomson Reuters poll of analysts showed on Friday.
Fierce competition spearheaded by state-run banks, eroding margins and a feeble economic expansion helped keep earnings in check. Slow loan disbursements among private-sector banks and the booking of heavy losses in bond investments held by banks should ensure a lackluster quarter, the poll showed.
"We expect poor second-quarter results overall, with banks suffering from weak treasury results, tighter margins and still-high levels of provision," said Francisco Kops, an analyst with J Safra Corretora.
Industry profit fell last year for the first time since 1997 as defaults jumped, indebted consumers took out fewer loans and President Dilma Rousseff pressed lenders to cut the cost of credit. Furthermore, spreads - the difference between the interest rate charged on a bank loan and the lender's cost of fundraising - narrowed dramatically in recent months.
Analysts in the poll said that the central bank's decision to raise the benchmark Selic rate twice in the quarter helped drive down the value of local debt owned by banks, particularly at Banco Bradesco SA
Return on equity, a gauge of how well banks invest shareholder money, rose at Itaú Unibanco Holding SA
Non-performing loan ratios receded, due more to the risk-off approach implemented by Itaú and peers than an improving economy. Net interest margin, the average rate earned on loans, fell at Banco Santander Brasil SA
Investors will be attentive to the banks' comments on their loan exposure to embattled billionaire Eike Batista's Grupo EBX, said Mario Pierry, an analyst with Deutsche Bank Securities. Banks had no EBX-related charges in the quarter, the poll said.
Recurring profit at Bradesco, or profit excluding one-off items, was 3.021 billion reais ($1.4 billion) in the quarter, according to the average estimate of eight analysts. They also predict a 2.6 percent increase in Bradesco's loan book.
Bradesco releases second-quarter earnings early on Monday.
The higher Selic helped halt a drop in spreads but weighed on Bradesco's trading-related income by pushing down prices on its inflation-linked bond holdings, the poll found. Return on equity probably fell to 17.4 percent, the poll found.
Recurring profit at Santander Brasil probably fell 16 percent to 1.269 billion reais on a quarter-on-quarter basis, seven analysts said in the poll. The bank probably originated new loans at lower spreads, pushing down net interest income, they noted.
Santander Brasil sped up payroll and mortgage loan disbursements, driving growth in its loan book by 3 percent, the poll found. Even as non-performing loans fell, provisions on bad loans likely rose for a second straight quarter, the poll found.
Strict expense cuts and efforts to stem a drop in spreads helped Itaú earn recurring profit of 3.616 billion reais in the quarter, according to the estimates of eight analysts. Itaú's cautious stance on disbursements and focus on growing fee income helped boost ROE to 19.4 percent in the quarter, the poll said.
Trading-related income at Itaú probably fell on a quarter-on-quarter basis, while spreads likely rose for certain products, the poll found. Provisions on bad loans fell slightly, in line with lower loan defaults, analysts said.
Both Itaú and Santander Brasil report earnings on July 30.
Recurring profit at Banco do Brasil, the nation's largest bank by assets, probably fell to 2.630 billion reais in the quarter, according to seven analysts. ROE came in at an average 16.4 percent, while provisions probably rose 12 percent from the prior quarter despite stable loan defaults.
Government pressure on Banco do Brasil to increase lending helped expand its loan book by 4 percent, twice the pace of private-sector lenders, the poll showed. Net interest margin fell to the lowest level on record, the poll found.
($1 = 2.24 Brazilian reais)
(Reporting by Guillermo Parra-Bernal; Editing by Gary Hill)
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