Itau Unibanco Holding SA (ADR)(NYSE:ITUB) is prepared to deal with an expected economic downturn in Brazil. The economy is expected to worsen in the second quarter. CFO Eduardo Vassimon said that they are taking measures to bulk up provisions for corporate loans turned sour. The preventative measure provides bank the ability to reduce the impact of a weakening job market, increasing loan defaults and sagging industrial activity.
The details
The CFO of Itau further added that the worst of downturn will be reflective in the second quarter. Industrial output declined 3.5% in March more than analysts’ expectation. The economists forecast borrowing costs to surge to the highest in over seven years at the end of this month. The provision expenses recorded in the previous quarter will not be seen in next quarter as they oddly high. He also added that pace of bulking up provisions is expected to decline in coming quarters.
The expectations
There is a bearish outlook for economic activity, defaults and credit demand, then too provisions expenses are expected to reach 16.5 billion reais for 2015, or the mid-point of Itau Unibanco’s forecast of between 15 billion reais and 18 billion reais. Vassimon’s comments failed to ease concern of the impact of country’s economic downturn on banks.
The performance
Last week, Itaú posted profit excluding one-time items or recurring net income of 5.808 billion reais better than analysts’ estimates of 5.590 billion reais. The recurring return on equity in the quarter was 24.5% compared with analysts’ expectation of 23.4%. While the nation’s biggest bank by assets rushed to reduce the growth outlook for loan book and increase outlook for LLPs, Vassimon stated Itaú’s ability sell more financial services to customers and re-price of new loans higher could result in a increased growth in interest income in FY2015. Itau stock opened almost 1% lower on Monday’s trading session.
