By Guillermo Parra-Bernal
SAO PAULO (Reuters) - Brazil's largest listed lenders are facing a deluge of requests from companies to renegotiate at least 100 billion reais ($28 billion) in problematic loans, posing headwinds for an industry struggling with a harsh recession and soaring delinquencies.
Steelmaker Cia Siderúrgica Nacional SA (SA:CSNA3) and engineering conglomerate Grupo Odebrecht SA are among dozens of firms pressing banks to ease the terms of outstanding loans amid Brazil's worst downturn in more than a century, sources familiar with the plans said. Odebrecht and CSN, as the steelmaker is known, declined to comment.
With bankruptcy filings up 150 percent this year and the economy poised to contract by about 4 percent for a second straight year, lenders are seeking to stave off defaults by cutting borrowing costs and stretching out maturities for small and large corporate borrowers. Banks renegotiated 130 billion reais in loans last year, central bank data showed.
As Brazil's listed banks prepare to report first-quarter results this week, analysts are voicing concern about the impact of loan renegotiations on future profits. According to Goldman Sachs Group Inc (NYSE:GS) analysts, the worsening market for Brazilian banks could drag average return on equity down to a 15-year low in coming months.
Renegotiations have become "the equivalent of 'kicking the can' a short distance down the road," Carlos Macedo, a New York-based analyst with Goldman Sachs, said in a recent client note.
Brazil's central bank estimated in a report earlier this month that a 30 percent jump in renegotiated loans - and a 50 percent increase in restructured credit - over the past year would increase the banking system's average default ratio by a little less than 1 percentage point.
If the same pace of restructurings continues for another year, earnings at Brazil's largest listed banks could fall between 9 percent and 17 percent, JPMorgan (NYSE:JPM) Securities analysts led by Domingos Falavina said in a recent note.
'CAR WASH'
On Wednesday, Banco Santander (MC:SAN) Brasil SA (SA:SANB11) will be the first of Brazil's top listed banks to report results.
Banco Bradesco SA (SA:BBDC4) will follow suit on Thursday, while Itaú Unibanco Holding SA (SA:ITUB4) and state-controlled Banco do Brasil SA (SA:BBAS3) plan to do so on May 3 and May 13, respectively.
According to two sources, Bradesco and Santander Brasil recently resumed talks with CSN to refinance a combined 1.2 billion reais in loans. The deal would allow CSN to start repayments from 2018 onward, two years later than scheduled.
Meanwhile, some of Odebrecht's subsidiaries are seeking to renegotiate up to 35 billion reais in loans, as the engineering conglomerate's involvement in a major corruption scandal at state firms curtailed their access to funding, another two sources said.
Other borrowers seeking debt relief from banks include phone carrier Oi SA, which this week launched talks to restructure $14.3 billion of bond debt.
Fallout from the corruption probe known as "Operation Car Wash" is hampering the ability of many companies to honor their debt and would oblige lenders to step up refinancing deals this year, the central bank report showed.
The need by companies and creditors to sidestep Brazil's ineffective bankruptcy protection legislation - which hampers debtors' ability to quickly get back on their feet - was also fueling banks' new-found enthusiasm for renegotiations, analysts said.
"Credit quality should continue to deteriorate but at a slower pace than thought by most market participants, as banks increase renegotiations, portfolio sales and write-offs," said Francisco Kops, an analyst with Safra Corretora.
Itaú, Banco do Brasil and Bradesco probably ramped up loan-loss provisions last quarter by about 25 percent after defaults climbed 0.6 percentage point to an average 3.5 percent of their outstanding loans, according to analyst estimates compiled by Thomson Reuters.
That weighed on profits in the first quarter, the data showed.
Average ROE probably fell to 17.3 percent, the lowest level at least two years. Recurring net income, or profit excluding one-time items, sank an average 8.4 percent last quarter on an annual basis - the first time that banks saw profit decline in about three years.
Following is a table with average consensus estimates for some key first-quarter earnings indicators for Brazilian banks. The numbers are expressed in billions of reais unless specified.