Banco Bradesco SA (ADR) (BBD): Is the Brazilian Banking Industry Growing?

A bank seeking growth

In the first quarter Banco Bradesco SA (ADR) (NYSE:BBD) recorded adjusted net income of $1.5 billion, up 3.2% y-o-y, matching market expectations. Net interest income rose 0.8% to $6.0 billion, and fee and commission income came in at $2.3 billion, up 13% y-o-y. ROE was 17%.

Loans rose 12% to $195.9 billion, and the bank continues to expect growth of 13%-17% in its loan portfolio in 2013.

Banco Bradesco SA (ADR) (NYSE:BBD)’s non-performing loan ratio continued its recent stabilizing trend, as loans delinquent 90 days or more accounted for 4.0% of the portfolio, compared with 4.1% in the first quarter a year earlier. This is very important, as Banco Bradesco SA (ADR) (NYSE:BBD) has been seeking expansion by offering banking services to the low and medium-income segments of the population, which tends to lower the quality of its credit portfolio and increase loan losses.

Bottom line

In spite of increasing competition and the stressed conditions in the Brazilian economy, banks’ profitability continue to grow. However, in the case of Banco do Brasil, its latest results corroborated a view among investors that the bank is sacrificing profits to gain market share. Not a good sign.

A more attractive investment is Itau. Its diversified product mix, cost control and expanded credit portfolio are encouraging. Also, Itau’s expanding operations in Brazil and abroad will definitely boost the company’s profitability.

Banco Bradesco SA (ADR) (NYSE:BBD) I like, but it comes with a price: higher risk. The bank will probably need to face higher loan losses than competitors in the near term, but it should be able to adjust its risk/reward profile and maintain its ROE around 20%.

The article Is the Brazilian Banking Industry Growing? originally appeared on Fool.com and is written by Victor Selva.

Victor Selva has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Victor is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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