Banks: Americanas (AMER3) could worsen what was already bad, say analysts; see what to expect from 4Q22

Banks enter 2023 without the glow they once had in times of ‘fat cows’. Bad debt, risk in the credit portfolio, increased provisions for doubtful debts, called PDD, add up to a year whose economic growth will not excite – the Focus Bulletin this second indicates GDP growth of just over 0.8%.

As if that were not enough, another worrying factor enters the radar: the gap in the Americans (AMER3), which amounts to BRL 40 billion. According to analysts, debts should not be ignored and could worsen an already bad scenario.

The fourth quarter should see a continuation of the worsening of defaults by individuals, highlights the analyst at Empircus ResearchLarissa Quaresma.

“That goes for all banks. Both the big and the small. The greater the concentration of the bank’s credit portfolio in retail lines, the worse the impact”, he says.

THE USB-BB points out that the asset quality of Brazilian banks will continue to deteriorate in the period, but now with the corporate segment on the list of concerns.

Analysts Thiago Batista and Olavo Arthuzo point out that the NPL (non-performing credit) index for large companies is at its historic lows (0.14% in November 2022) and there are several signs that the favorable wind for companies is over.

“In the case of SMEs (small and medium-sized companies), the NPL ratio is still well below average and a future deterioration should not be ruled out”, they argue.

Itaú and Banco do Brasil are highlights

And as seen in recent quarters, Bank of Brazil (BBAS3) it’s the Itau (ITUB4) will report yet another eye-popping quarter. Quaresma, from Empiricus, explains that as the two banks are less exposed to individuals, the impact of default is smaller.

THE UBS says that in the case of Itauthe largest private bank in the country will continue to show a strong net margin trend, which will lead to a good effect for 2023, while asset quality may maintain the pace of deterioration, even lower than competitors.

Swiss bank analysts see a profit of BRL 8.3 billion, with a return on average equity (ROAE) of 20.6%. Despite this, the default rate will continue to increase slightly in the coming quarters.

For the harvestThe Bank of Brazil expected to show the greatest revenue expansion among competitors.

This performance should be boosted by the positive contribution of gross financial margin and other revenue lines.

THE harvest still calculates that the BBAS3 maintain positive performance throughout the year. Another rather optimistic house, the BTG awaits strong numbers, with profit of R$ 8.7 billion and ROE of 21.8%.

If so, the BB will close 2022 with revenues of BRL 31.5 billion (20.5% ROE), similar to Itaubut with a market value of only 45% of its private competitor.

In 2023, the BTG expects the guidance to continue to show healthy momentum, suggesting earnings per share growth of 5% to 10%.

“If that is the case, the BB would be trading at 3.4x P/L (price over earnings) in 2023, with a dividend yield of 12%, which we think is very cheap”, he adds.

Santander and Bradesco on the downside

On the other hand, the Santander Brazil (SANB11) it’s the Bradesco (BBDC4) will again be the negative highlights. UBS says that the Osasco bank’s results will present a significant contraction, due to the combination of higher provision expenses combined with still weak commercial results.

“In the case of Santander, the combination of a higher effective tax rate (which has been abnormally low in previous quarters) and lower customer margins should lead to another significant contraction in earnings,” he says.

Earlier, the great cut the recommendation Santander from neutral to sell citing a difficult fourth quarter. The brokerage expects a continuation of the trends observed in the third quarter, “but with an aggravating factor of greater pressure on the cost of credit and a weak treasury due to the current level of interest rates”.

UBS estimates a profit of BRL 4.2 billion for Bradesco, down 37% in the year, and a profit of BRL 2.8 billion for Santander.

American case

Among the banks most exposed to Americanas are:

According to the analyst of Empiricusin 2022 the default of large companies remained well behaved and considerably below the pre-pandemic level.

“We should not see any impact on this line in the fourth quarter, especially since the impact of Americanas is in January. It should come in the result of the first quarter”, he says.

However, she does not rule out that, given the materiality, some banks may choose to provision earlier. “Assuming that banks can play this provisioning forward a little, we see an impact on earnings for the next 12 months of 3% in the case of Itaú and 10% in the case of Santander”, she adds.

Still in the analyst’s view, banks now need to face this challenge more. “Until then the problem was very much in the retail sector and now it appears in the wholesale bank. It certainly makes the scenario worse”, she points out.

Even so, Quaresma emphasizes that, for now, everything indicates that this is a localized event, with no risk of infecting the financial system.

“There are people who see it as a systemic failure of large companies, which is not the case. It will not turn into an uncontrolled default as we are seeing in individuals”, he adds.

Earlier, the BBA cut the recommendation of the Bradesco for sale. According to the broker, the Americans weighs in for the perfect storm.

For the institution, after a weak 2022, it is likely to take a while for investors to come back to gain confidence with the papers.