Credit and cost control make Bradesco surpass profit forecast in the 2nd quarter

Bradesco exceeded earnings forecasts in the second quarter, driven by strong growth in more profitable lines of credit and cost control.

The second largest private bank in the country announced this Thursday that its recurring profit for the period totaled R$ 7.04 billion, up 11.4% over a year earlier and above the forecast of analysts consulted by Refinitiv, of 6.783 billion. In net terms, the profit of R$ 7.075 billion was 18.4% higher.

In the report, Bradesco mentioned the financial margin with customers, fees, expense control and good performance of the insurance arm as the foundations of the result.

At the end of June, the bank’s expanded credit portfolio totaled R$ 855.4 billion, with an increase of 17.7% in 12 months, driven mainly by the expansion of lines such as credit cards and personal, which are more profitable.

As a result, the margin with customers jumped 25.8% year-on-year to R$16.95 billion. This overshadowed the negative result of the treasury, of R$ 587 million, compared to a positive R$ 2.27 billion a year earlier.

Revenues were also reinforced by services and tariffs, which grew 6.7% year-on-year, to R$8.98 billion. Finally, a mix of strong increases in operating and financial revenues made the insurance arm’s profit jump by 175.6%, to R$1.8 billion.

At the other end, the bank managed to maintain control over administrative expenses, which rose 4.9%, at a much slower pace than the period’s inflation, to R$11.5 billion.

On the other hand, Bradesco recorded a worsening in the quality of its loan portfolio, with the delinquency ratio above 90 days increasing 0.3 percentage point on a quarter-on-quarter basis, but stable year-on-year. But the leading indicators of defaults – arrears over 60 days and NPL – took a sharp turn for the worse and the coverage ratio dropped rapidly.

This led Bradesco to increase the volume of provisions for expected default losses by 52.5%, also year on year, to R$5.31 billion.

In comments sent after the results were announced, Bradesco’s chief executive, Octavio de Lazari Junior, said that the bank has made adjustments to its credit risk models in recent quarters.

“Thus, we should grow at a more moderate pace, while maintaining the profitability of our portfolio,” he said.