Santander Brasil weighs on group results as Q2 net profit falls 45%

SAO PAULO (Reuters) -Brazilian lender Santander Brasil on Wednesday reported a 45% drop in second quarter net profit, dragging on the performance of its Spanish parent.

The bank, an unit of Spain's Banco Santander, said in a securities filing its net income reached 2.26 billion reais ($475.76 million) in the period. That was 5.5% higher than the previous quarter but still far lower than a year ago.

Its performance affected group results. While a strong performance in Spain and other European countries ensured robust quarterly earnings, this was offset by the weakness in Brasil, a key market.

Santander Brasil's bottom line was also slightly below market expectations, as analysts polled by Refinitiv had forecast it to reach 2.47 billion reais.

"Results again came in weak at the core," analysts at Credit Suisse said in a note to clients. "We note a weak top-line environment that has ensued from a more conservative approach in credit origination."

J.P. Morgan analysts dubbed it a "mixed quarter" for Santander Brasil, but noted that expectations were already low for its results.

The lender's shares slipped as much as 1.9% in Sao Paulo morning trading before reversing course to trade almost flat, in line with the broader Bovespa stock index.

Santander's provisions for loan losses fell 11.6% quarter-on-quarter to 5.98 billion reais - one of the quarter's silver linings.

Management said this reflected its strategy of trying to be more selective in lending amid deteriorating credit conditions.

The positive effects of more selective lending since 2021 were starting to show, Chief Executive Mario Leao said in a statement.

"We noted improvements in the allowance for loan losses and in the short-term non-performing loan ratio this quarter," he said.

This evidenced "the quality of the new vintages, which allows for a bias towards improving cost of credit over 2023 and enhances our ability to resume growth", Leao continued.

Santander Brasil's loan portfolio remained roughly stable in the second quarter from the previous three months at 499.3 billion reais.

($1 = 4.7503 reais)

(Reporting by Gabriel Araujo, Editing by Louise Heavens, Steven Grattan and Emma Rumney)