13 February 2019 08:52 PM | Significant Corporate Event | REDD LatAm
Strategic considerations: Banco do Estado do Rio Grande do Sul beat its own guidance in 2018, growing its total credit portfolio by 8.6% to BRL 34bn (USD 9bn). The bank expects the portfolio to increase another 8% this year, driven mainly by individual borrowers. Credit growth could gain momentum on the shoulders of a rebounding Brazilian economy and the possible approval of economic reforms.
• Growth in corporate loans might take longer to bounce back
• IPO and privatization not on the radar
Banco do Estado do Rio Grande do Sul (Banrisul) forecasts 8% growth for its credit portfolio in 2019, driven mainly by its individual borrowers, IR Superintendent Alexandre Ponzi said on a conference call with analysts to discuss 4Q18 results.
The Brazilian state-owned bank also posted positive results for 2018, with better metrics than its peers, said Lucas Lima, investment analyst at Toro Investimentos. The bank focuses primarily on individual borrowers, which represent around 70% of the total lending portfolio, he added.
In 2018, Banrisul’s portfolio grew 8.6% to BRL 34bn (USD 9bn at today’s exchange rate), beating its guidance of 3%-to-7%, according to its financial statement. The main driver, lending to individuals, jumped 17.8% last year versus guidance of 5%-9%, according to the same document. Management expects credit to individuals to increase 6%-10% this year.
Lending to corporates, in contrast, is taking longer to recover, said Lima. The company reported a 5.6% drop in that portion of its credit portfolio for 2018. After a recession in 2016, several companies built up inventories and idled capacity, Lima said. He added that before entering a new cycle of investments that requires funding, these corporates are likely to first monetize their inventories. A rebound in corporate loans is most likely at the end of 2019 or beginning of 2020, especially after the approval of reforms, according to Lima. Banrisul management, for their part, projected a 1%-5% rise in corporate loans in 2019.
The bank also brought down delinquency rates for 90-day past-due loans to 2.56% in 4Q18, from 3.56% a year earlier, Lima said. Banrisul has released guidance for a return on average equity (ROAE) of 16%-to-19% in 2019 from 15.3% in 2018, according to a research report. That range implies a net profit of roughly BRL 1.3bn in 2019, according to the report.
Projections that Brazil’s economy will grow at a 2.5% clip in 2019 — or even faster if pension reform passes — indicate that consumption and access to credit will gain momentum, according to Lima.
After releasing strong results for 2018, Banrisul shows it has the conditions to execute its guidance for 2019.
Meanwhile, speculation about the bank’s privatization continues, according to a second research report. Privatization of the bank would require the support from the electorate via a referendum vote. But the new governor of Rio Grande do Sul, Eduardo Leite, has already ruled out passing control of the bank over to the private sector, saying his administration will focus on the privatization of three other state-owned companies in the energy, mining, and gas sectors.
Another talked-about event involving Banrisul, the IPO of its Banrisul Cartoes division, is similarly not expected in the short-term, CEO Luiz Gonzaga Veras said in a press conference yesterday. Lima from Toro Investimentos, though, believes the IPO of the credit card unit is important for the bank because it would mean a cash injection. Banrisul announced in March 2018 that it was planning to IPO Banrisul Cartoes, but stopped the transaction in November 2018 due to adverse market conditions, as reported.
Operating under the brand Vero, the credit card division has a strong market share in the state of Rio Grande do Sul, but has been facing intensifying competition from players such as Scielo and Stone, among others, Lima added.
by Fabiola Gomes, Sao Paulo