UPDATE 2-Bradesco bulks up provisions as worst may not be over, says CEO

(Adds CEO, analyst comments, updates share price)

By Carolina Mandl

SAO PAULO, July 30 (Reuters) – Brazil’s Banco Bradesco SA set aside more than 3.8 billion reais ($732.8 million) for potential COVID-19-related loan losses and is tightening a grip on costs, as its chief executive says the economic outlook is still ambiguous.

“The economic outlook is still very challenging, although it appears the worst may be over,” CEO Octavio de Lazari Junior told journalists on Thursday. “But it is not possible to have a (clear) outlook or say the worst is over.”

Brazil’s second-largest private lender reported a recurring net income, which excludes one-off items, of 3.87 billion reais ($749 million), down 40.1% from a year earlier.

Bradesco’s move shows the bank sees more losses stemming from the crisis than management had initially expected. It had already provisioned 2.7 billion reais earlier.

The bank has given a grace period for 61 billion reais in loans, or 9.2% of its total portfolio, while renegotiations rose by 3.5 billion reais.

To help weather the crisis, the bank plans to reduce nominal operating costs this year and next year. They fell 2.5% in the second quarter from the January-March period.

Bradesco will accelerate the closure of branches, which should number around 400 this year, but Lazari did not further elaborate on the savings plan.

The bank said loan-loss provisions are likely to fall in the second half of the year from the first, while Bradesco should outperform rivals in loan book growth.

“Soft guidance points to better times ahead, especially for provisions and costs,” analysts at Credit Suisse wrote in a note. Still, Bradesco’s preferred shares were down more than 3% in the morning trading.

Lazari said he sees consumer credit demand slowly picking up, but the bank has little appetite to extend overdrafts, and personal and credit card loans.

The bank plans to boost credit to small companies, but using government-secured funds more than with its own balance sheet.

Demand from large companies fueled a 0.9% rise in its loan book, even as consumer lending fell. ($1 = 5.1856 reais) (Reporting by Carolina Mandl; editing by Jason Neely and Jonathan Oatis)

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