Santander Brasil cuts costs, credit card risk amid coronavirus

By Carolina Mandl

SAO PAULO (Reuters) - Banco Santander Brasil SA's <SANB11.SA> chief executive, Sergio Rial, on Tuesday said the bank is implementing a series of measures aimed at helping it weather the coronavirus crisis, such as reducing credit card risk and cutting technology spending.

Rial said in an interview with Reuters that he cannot yet foresee the pandemic's full impact on the bank's results, although loan delinquencies and losses are likely to go up after a forecast-beating first quarter that sent its shares soaring.

Still, he does not see the 90-day default rate for banks in Brazil spiking above the previous record of 5%. Currently, 3% of Santander's outstanding loans are more than 90 days past due.

The Brazilian unit of Spain's Banco Santander SA <SAN.MC> plans to keep operating costs growth below inflation in 2020. Rial said the bank has instituted a hiring freeze and cut capital expenditures on technology by 30% this year, adding that it had begun some cost cutting measures even before the coronavirus pandemic hit.

"Although nobody could predict a pandemic, we were foreseeing a more challenging year, so the bank took a lot of measures at the end of 2019 that will help now," he said.

Santander Brasil is also pulling back on revolving credit lines for cardholders, seen as riskier because they have no collateral. The bank's credit card loan book shrunk by nearly 9% in the first quarter.

The bank, which posted higher-than-expected first-quarter net income, said it did feel an initial impact from the coronavirus slowdown. Profit came in at 3.853 billion reais (558.06 million pounds), 9.2% higher than estimated by Refinitiv analysts.

The health crisis hit its fee income, as revenue dropped 6.7% from the previous quarter, to 4.482 billion reais, mainly on cards, partially due to changes in consumer habits amid social isolation measures.

Santander Brasil's loan book ended March at 378.5 billion reais, up 7.5% from December, boosted by corporate loans, as companies sought more credit amid the crisis.

Loan-loss provisions jumped 19.2% in the first quarter from a year earlier, to 3.424 billion reais, and Rial said the bank may set aside more for loan delinquencies going forward, depending on how the crisis develops.

The bank's return on equity reached a record 22.3% in the first quarter, up one percentage point from the previous quarter.

Rial, who is also Banco Santander's head for South America, said the bank is keeping its plans to boost regional consumer lending, although it may slow plans due to the coronavirus.

Earlier on Tuesday, Santander's parent company reported a 82% dive in its first-quarter net income, as it set aside 1.6 billion euros to cover expected losses caused by the COVID-19 pandemic.

(Reporting by Carolina Mandl; Editing by Chizu Nomiyama and Steve Orlofsky)