Itau Unibanco Holding SA (ADR)(NYSE:ITUB) reduced loan growth expectations for this year, as Brazil’s economy struggles to regain traction. Now, it expects credit portfolio to record a growth rate of 3% to 7% in 2015, down from initial growth forecast of between 6% and 9%. Brazilian banks have witnessed years of double-digit growth, but this year things seem different. There is less demand for credit, indicating a setback for Brazilian economy.
The growth
Last year, Itau posted loan growth of 9.8% to $181 billion compared to Brazil’s economy expansion of 0.1%. This year, the economy is expected to contract by 1.18%, representing increased problems for the banks. The root causes of contraction are identified as high inflation and interest rates. Moreover, a corruption scandal at Petroleo Brasileiro Petrobras SA (ADR)(NYSE:PBR.A) has added to woes. As per the experts, the ongoing problems at one of the biggest investment spending company will adversely affect economic growth.
The silver lining
Although Itau reduce loan growth outlook but still it was able to record strong net profit in 1Q. It is significant as the company posted robust net profit amidst deteriorating macroeconomic conditions. The bank managed to offset the problems by hiking interest rates that it charges to customers. The net profit came at 5.73 billion Brazilian reais compared to BRL4.42 billion, a year ago. The net interest margins also improved as they jumped 27.8% to BRL15.96 billion in 1Q. Financial-service revenue surged almost 13% to BRL6.87 billion in 1Q.
The highlights
Itau Unibanco credit portfolio surged 13.2% to BRL578.59 billion, from the year-earlier period. The total assets came at BRL1.29 trillion compare to BRL1.1 trillion in the same quarter, a year ago. The provisions surged to BRL5.5 billion from BRL4.25 billion a year ago. The bank also increased provision expenses for current year to up to BRL18 billion, up from initial forecast of BRL15 billion.
