By Gabriel Araujo
SAO PAULO (Reuters) -Banco Santander (BME:SAN) Brasil SA on Thursday reported a large fourth-quarter net profit miss as loan-loss provisions rose against a backdrop of higher interest rates and deteriorating credit conditions, potentially setting a negative tone for the sector early in the earnings season.
Shares in Santander Brasil, which had dropped 5.5% in the previous session, faced volatile trading on Thursday, trading up 3.3% after slipping as much as 2.6% early in the day.
The local unit of Spain's Banco Santander SA (NYSE:SAN), which accounts for more than a quarter of group earnings, saw its quarterly bottom line drop by more than half year-on-year, falling short of expectations.
The bank's quarterly net profit reached 1.69 billion reais ($334.3 million), down 56% from the previous year, as provisions for bad credit nearly doubled amid higher interest rates.
Analysts polled by Refinitiv had forecast a 2.86 billion-real profit in the period.
Santander was the first major lender in Latin America's largest economy to report results this season, with Bradesco and Itau Unibanco set to follow next week.
"Santander Brasil posted a very low quality quarter, again," analysts at JPMorgan (NYSE:JPM) said, adding the results were "setting a negative tone for the sector".
Santander's chief financial officer Angel Santodomingo said the results came as the bank continued to push for an "operational adjustment" started in the previous year, when it became "more selective" in lending, as credit conditions deteriorated.
He said net interest income came under pressure from changes in the product mix and higher interest rates, a trend set to persist throughout this year.
Santander Brasil's loan-loss provisions reached 7.36 billion reais, pressured by bad credit in loans to individuals, the bank said.
In the full year of 2022, its net profit dropped 21.1% from the previous year to 12.9 billion reais, while rose 72.7% and net interest income fell 6.8%.
"A big miss," Credit Suisse analyst Marcelo Telles said in a note to clients, citing weaker than expected core performance in net interest margin, operational expenditure and fees.
He estimated provisions related to the bankruptcy of Americanas SA earlier this year to have reached 1.1 billion reais, about 30% of Santander Brasil's previously reported exposure to the retailer, also affecting results.
Quarterly return on average equity (ROAE), a gauge of profitability, plummeted to 8.3% from 20% in the same period of 2021, while the loan portfolio rose 5.8% to 489.7 billion reais.
"We begin 2023 with a solid balance sheet and a portfolio of higher quality," Santodomingo said. "We will continue to grow sustainably".
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