Santander's profits are lower, but it only makes money in Brazil.
Emilio Botín Bank announced a net profit of R$1,598 billion in Brazil for the fourth quarter of 2012, approximately 3% less than a year earlier; earlier, the Spanish bank announced a 59% global drop in 2012 profits, amid a sharp increase in provisions for bad debts and write-offs in its home country.
By Aluísio Alves and Alberto Alerigi Jr. (Reuters) - Santander Brasil reported a drop in profit, weak expansion of its loan portfolio and a deterioration in asset quality in the fourth quarter, but predicted improvement in 2013, amid prospects of stronger economic growth in the country.
The country's fifth-largest commercial bank posted a net profit of 1,598 billion reais in the period, about 3 percent less than a year earlier, but above the average forecast of 1,29 billion reais by analysts polled by Reuters.
In 2012, profits totaled 6,329 billion reais, a 5 percent decrease compared to 2011.
The loan portfolio closed December at 211,96 billion reais, an expansion of only 7,6 percent in 12 months, with a combined increase of 6,8 percent in the segments of individuals and consumer finance and 8,4 percent in loans to companies.
"It's difficult to cruise at speed with a weak economy," the CEO of the Spanish bank's branch in the country, Marcial Portela, told reporters on Thursday.
The report mirrored the trend shown by Bradesco, which kicked off the earnings season for major banks on Monday with weak loan growth and high levels of non-performing loans.
Santander's better-than-expected fourth-quarter profit partly reflected a 4,1 percent drop in loan loss provisions to 3,1 billion reais. This occurred despite the delinquency rate for loans overdue by more than 90 days rising 1 percentage point year-on-year and 0,4 percentage points compared to the previous quarter, to 5,5 percent.
The portfolio coverage level fell to 126 percent. According to Portela, the deterioration of the portfolio reflected Santander Brasil's greater focus on the small and medium-sized enterprise segment and the lower level of renegotiation of overdue debts with individuals.
For 2013, the institution expects the default rate to begin falling, led by the corporate loan portfolio in the first half of the year, and then followed by the retail loan portfolio in the second half.
"This level of default doesn't worry us," said Portela.
Another weak point highlighted by analysts in the results was gross revenue with financial margin, which grew 6 percent in the fourth quarter compared to the same period last year, but fell 3,7 percent from July to September, to 7,8 billion reais. This variation, according to Portela, reflected the lower use of revolving credit lines by individual customers.
Weak credit expansion, worsening margins, and declining asset quality resulted in a drop in profitability, measured by annualized return on average equity, to 12,2 percent in the fourth quarter, from 13,5 percent a year earlier.
"Although the bottom line was a highlight, the quality of the results was poor," commented the Goldman Sachs analyst team led by Carlos Macedo in a report. "Credit growth was weak, margins fell significantly, asset quality worsened, and coverage of non-performing loans fell significantly," they added.
In any case, the bank's unit was recovering on the Bovespa this Thursday, the 31st. After starting the session in the red, at 15:58 PM, the stock was up 1,45 percent, at 14,74 reais, while the Ibovespa had a negative variation of 0,02 percent.
PROSPECTS
For 2013, Santander Brasil forecasts growth of approximately 15 percent in its loan portfolio, based on expectations of 3 percent expansion in the Brazilian economy during that period.
Despite weak performance between October and December, the bank maintained its weight within Santander's overall results. Earlier, the Spanish bank announced a 59 percent drop in 2012 profit, amid a sharp increase in provisions for bad debts and write-downs in its home country.