By Gabriel Araujo
SAO PAULO (Reuters) -Banco Santander Brasil SA on Thursday beat second-quarter net income market expectations but its loan-loss provisions rose against a challenging macroeconomic backdrop, sending its shares almost 3% lower.
Net profit rose 2% from the previous quarter to a better-than-expected 4.08 billion reais ($778.08 million), as analysts polled by Refinitiv had forecast the Brazilian unit of Spain's Banco Santander SA (NYSE:SAN) would post net income of 3.88 billion.
However, Santander Brasil said that loan-loss provisions - an indicator of how much cash the bank has set aside to cover loans that are unlikely to be fully repaid - hit 5.75 billion reais, up 24.6% on the quarter.
Units in Santander Brasil were down by as much as 2.9% at 27.04 reais early on Thursday until they pared losses to trade around flat. Brazil's Bovespa stock index rose 0.3%.
"Cost of credit was the main detractor, with provisions rising impressively," analysts at Genial Investimentos said in a note. They added they expected a challenging second half, even with provisions seen slowing in the fourth quarter.
Ahead of the earnings report, investors surveyed by Bank of America (NYSE:BAC) had said the company was likely to deliver the weakest quarterly figures among banks with large market capitalisation in Brazil, with provision charges among their main concerns.
Brazil's third-largest private bank, Banco Santander (BME:SAN) Brasil competes with players including Itau Unibanco, Bradesco and state-run Banco do Brasil.
Analysts at Credit Suisse and JPMorgan (NYSE:JPM) said Santander's results may have a negative read-through for Bradesco on cost of risk and negative trading figures respectively.
In a statement, Santander Brasil's finance chief, Angel Santodomingo, said: "Despite a still-challenging macroeconomic environment, loan portfolio quality indicators were stable over the period."
The lender's loan book rose 2.9% on the quarter to 468.54 billion reais.
Brazil is the Spanish lender's largest customer base and accounts for almost a third of underlying group profit.
($1=5.2437 reais)