May 4, 2011 12:26 am

Brazil’s Itaú holds to forecast for loan growth

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Itaú-Unibanco, Brazil’s biggest private sector bank, is standing by its original forecast of up to 20 per cent credit growth this year despite new government measures to cool lending, suggesting the authorities will have to take tougher action to slow the economy.

Earlier this year, the government raised the tax on consumer credit and foreign borrowing in an effort to slow lending, which it blames for fuelling excessive spending and pushing inflation up to worrying levels. The central bank has also raised the country’s interest rate three times this year to 12 per cent.

However, Itaú-Unibanco said on Tuesday that it still expects its credit portfolio to expand up to 20 per cent this year, unchanged from the estimate it made before the government’s recent credit measures and much higher than the central bank’s sector forecast of 10-15 per cent.

“No one wants to see Brazil suffering a sharp slowdown,” said Rogerio Calderón, Itaú-Unibanco’s investor relations director, speaking at the presentation of the bank’s first-quarter results. He said it was unlikely the government would take any more drastic measures to cool the economy.

Brazil’s credit boom has proved particularly profitable for the country’s banks, which have been able to borrow at low rates abroad and then charge much higher interest rates back in Brazil.

Itaú-Unibanco’s first-quarter net income rose 9.3 per cent to R$3.53bn ($2.24bn) from R$3.23bn in the same period of 2010.

However, analysts voiced some caution about future growth, suggesting Itaú-Unibanco and its competitors may be caught off guard by further increases to taxes on credit or new measures to stop the economy from overheating.

“It’s possible the central bank has something up its sleeve that the banks don’t know about,” said Luis Miguel Santacreu, an analyst at Austin Asis, a banking sector consultancy in São Paulo.

“I think Itaú’s credit growth will be closer to 15 per cent. More measures must be on their way and higher interest rates will start having an impact soon,” said another banking analyst in São Paulo, who pointed to a dip in the bank’s car loan segment from the previous quarter as a sign of things to come.

As the bank comes up against overheating in its home market, the overinflated prices of some assets across the region may also make international expansion more problematic.

While Brazil remains its predominant focus, Itaú-Unibanco is now looking to other fast-growing economies in the region, said Ricardo Villela Marino, the bank’s chief executive for Latin America.

“Itaú BBA (the bank’s wholesale and investment unit) already started operations in Peru and is waiting approval for a licence in Colombia,” he said, adding that the bank is likely to expand via green field investments rather than just acquisitions.

“You need two to tango,” Mr Villela Marino said. “Latin America’s economy is doing well in the wake of the financial crisis – it was the last in and the first out – and the forecasts are good for the sector. But this means that prices, the multiples of other banks, are often too expensive.”

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